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CHRIS WALLACE, HOST: I'm Chris Wallace. New reports that the Pentagon is drafting a timetable for the Iraqi government to take over -- next, on "Fox News Sunday."

Raging sectarian violence threatens Iraq. A nuclear North Korea alarms the world.

What should the U.S. do? We've brought together the four most powerful senators on foreign policy and military affairs: Republicans John Warner and Richard Lugar and Democrats Joe Biden and Carl Levin, the chairmen and top Democrats on the Senate Foreign Relations and Armed Services Committees, all in a "Fox News Sunday" exclusive.

Also, as we head down the stretch of the 2006 campaign, where does the fight for control of Congress stand? We'll ask our Sunday regulars: Brit Hume, Mara Liasson, Bill Kristol and Juan Williams.

And our power player of the week makes billions and gives it away.

All right now on "Fox News Sunday."

And good morning again from Fox News in Washington. Let's start with a quick check of the latest headlines.

The New York Times reports the Bush administration is preparing a timetable for the Iraqi government to end sectarian violence and take over security. The blueprint would be presented to the Iraqis by the end of the year. But one U.S. official said the account is not accurate. Another said the Pentagon is working with Iraq to set benchmarks for progress.

A top State Department official says the U.S. showed arrogance and stupidity in Iraq. Alberto Fernandes in the Bureau of Near- Eastern Affairs spoke to Al-Jazeera television. A State Department spokesman says Fernandes was misquoted.

And according to news reports, North Korean leader Kim Jong Il told the Chinese he isn't planning another nuclear test. But Kim says what his country does next depends on U.S. policy toward North Korea.

Well, with a new sense of urgency in Iraq and a nuclear showdown with North Korea, we've assembled the four most powerful members of the U.S. Senate on national security: from the Foreign Relations Committee, Republican Chairman Richard Lugar and ranking Democrat Joe Biden, and from the Armed Services Committee, Republican Chairman John Warner and ranking Democrat Carl Levin, who's nursing his wounds in Detroit after game one of the World Series.

(LAUGHTER)

In any case, Senator Warner, have we now reached a tipping point in Iraq where President Bush's open-ended commitment to creating a unified, stable, democratic Iraq has to be reconsidered?

SEN. JOHN WARNER (R), VIRGINIA: I think the administration is constantly revising and looking forward. This article in the New York Times and in other periodicals -- Post, so on -- it does indicate clearly the forward thinking of the administration, working with the government of Prime Minister Maliki.

I stress, we've given sovereignty to that country. You said starting up the government or whatever. That government is up and functioning. Our job is to keep it moving forward.

But the key to this thing is impressing upon that government that they've got to come to grips with what is causing this increase in violence and killing, both Iraqis and our own armed forces, which incidentally -- I just got back -- are doing a brilliant job, our troops.

It is Maliki, you've got to come to grips with the private militias and get them out of business so that you're moving forward as the government unified and not the government of Sadr or Hakim or the Kurds. It is one government, united, bringing about peace and stability for that country.

WALLACE: I want to get back to that in a moment, but let's do a whip- around of your three colleagues.

Senator Biden, are we at a tipping point? Are we at a crossroads? Is it time to change policy?

SEN. JOSEPH BIDEN (D), DELAWARE: It was time to do it two years ago. What the president is calling for, at least what appears to be the case, of consideration of benchmarks, the United States Congress voted on about a year and a half ago. And my good friend, the chairman of the committee, took a Democratic proposal and made it even better, which basically called for the same thing.

The truth of the matter is there's a need for radical change in policy. There's a need for a political solution in Iraq and a bipartisan solution here at home. Without those two things happening, there is no possibility, in my view, we succeed in Iraq.

WALLACE: Senator Lugar?
SEN. RICHARD LUGAR (R), NEBRASKA: I think it's important to stress another dimension, and that is there's 40 to 60 percent unemployment in Iraq. The oil production is going down; there's corruption there.

In essence, even if you had a military solution or stability, it's not really clear how people pay for their government, physically how it continues on.

And therefore, as a part of the planning, we're going to have to rethink the reconstruction of the country in a way we haven't. We've sort of zeroed out in appropriations this reconstruction group at the State Department, even though the Defense Department is willing to give us some money. That's a critical element of this, because the stability of this is going to come about when people are employed, Iraqis are employed, reconstructing their country. Quite apart from the division of the oil money, if there isn't very much oil money, that becomes academic. And I just stress that as a part of this planning.

WALLACE: Senator Levin?

SEN. CARL LEVIN (D), MICHIGAN: Well, the administration has refused to consider changing course for the last couple years, although it's been obvious that the violence in Iraq has been increasing consistently. The killings have been increasing, and yet when we call for change of course, as we have for the last two years, to put pressure on the Iraqis to work out their political differences -- since our leaders in Iraq tell us there is no military solution, there's only a political solution in Iraq, and the leaders in Iraq have got to work out those differences or else the killings will continue and the violence will continue.

Every time that we Democrats and a few Republicans call for a change of course, instead of the president's bumpersticker, "stay the course, stay the course, stay the course," we've been labeled as cut- and-runners.

And I don't know if this administration is finally listening to what the reality is and recognizing the reality, but I hope so. And we shouldn't wait til the end of the year to come up with milestones. We ought to be doing that now. We should have done it long ago.

And we shouldn't wait until after our elections are over to tell the Iraqis that we are going to have to tell -- we're going to have to set a time when we're going to begin to leave Iraq. Because without that pressure of our troops leaving Iraq a few months down the road, the Iraqis are not going to do what only they can do, which is to work out those political differences.

WALLACE: One of the things that strikes me, in listening to all four of you, is you talk less about the military situation and more about the political situation.

I want to ask you about that, Senator Warner, because there were a couple of developments this week that I'm sure all of you felt were pretty troubling. One was that Prime Minister Maliki said that he wants to delay taking on and disarming the Shiite militias until the end of the year or some time next year.

We also had this kind of remarkable event where the U.S. arrested one of Muqtada al-Sadr's, the radical Shiite cleric, top aides for supposedly being involved in death squads, and then Maliki put pressure on the U.S. to release him because he didn't want to confront one of the main supporters of his regime, namely Muqtada al-Sadr.

Question: Do you still have confidence that Prime Minister Maliki is strong enough, tough enough, willing to do what needs to be done to bring this country together?

WARNER: I think we have no other course but to give him our confidence and our support. I thought Rumsfeld spoke very toughly yesterday, or the day before. He said, "Better that you get this done now than later." I mean, it was tough talk. The president has been very forthright and tough on Maliki.

You've got one other fact that you should know about. Maliki went to see Sadr and Grand Ayatollah Sistani just 48 hours before there was this Shia-upon-Shia fight down in Amarah. Now, that's clearly showing that his conversations with those two people were not fruitful. You have got to hold him to it. Maliki has to give more authority to the Iraqi army.

Our professionals, I met with them yesterday at the Pentagon, have a degree in confidence in that army if they had more authority, more leeway to make decisions. And it is their job, not the U.S. coalition forces, to subdue and get rid of these private militias.

WALLACE: Senator Biden, do you still have confidence in Prime Minister Maliki?

BIDEN: I remember I was on your show when I came back after meeting with him in July and told you then I had no confidence in him. I have no confidence in his ability and possibly his willingness to deal with taking on that Shia coalition.

When I was down in Basra over the 4th of July, British general telling us, "It's not about an insurgency in the Shia region. It's not about a civil war. It's about a group of militia competing for control of that region."

And without a political solution, Chris, without giving the Sunnis a piece of the oil action, without following up with what they've already done under their constitution, call for a federal system -- they've already voted for a system to allow federalism -- without us making that work, helping them make that work, I don't know how he can do much of anything. I don't even think his inclination is to do much of anything.

WALLACE: But let me ask you a question. I mean, we'll get into the partition idea, which I know is one of your big proposals, in a moment. If he's not the right guy, and he was the one who was elected by the various elements in the National Assembly, what do we do?

BIDEN: Well, what we do -- remember when the president made that secret trip over and they met with him, and I remember I was on a sister show of yours, and they showed me a picture of the president whispering in Maliki's ear, and they said, "What do you think of this?"

I said, "It depends on what he's whispering in his ear. If he's whispering in her ear, 'We support you,' we're in trouble. If the president's whispering in Maliki's ear, 'Look, Jack, let's get something straight here. I'm serious, I'm not joking, you've got to deal with the militia, and you've got to give the Sunnis a piece of the action in terms of the oil revenue, so there's a political solution here. Absent that, you're in trouble.'"

So we are now seemingly beginning to say that to him -- a little late, but he's the only horse in town and they elected him.

WALLACE: Senator Lugar, do you have confidence -- do you still have confidence in Prime Minister Maliki?

LUGAR: Well, I think he's probably the best horse to ride on in the situation. The predicament is such, as Maliki looks at it, is that the Kurds are in favor of democracy generally, but polling in Iraq indicates that they're very conflicted on democracy at all, with regard to the central part of the country and Sunni areas don't like democracy.

And, as a matter of fact, sort of across the board, people would like a "strong" leader -- strong in quotes -- which is not Maliki. Maliki comes to us, I'm told, a phone call with the president, wanting assurance that we're not going to displace him.

But the fact is we don't have anybody to displace -- we're talking about putting pressure on Maliki, but he doesn't have much clout. Now, we probably need to think through how we, the United States, can give this prime minister more clout. Because he can't...

WALLACE: How do we give him more clout?

LUGAR: Well, that's a very good question, but it's a political question once again. Physically, how does our ambassador, how does the president, how does the secretary of state, anybody, weigh in?

Because we keep saying, "Go to your Shiites and get them straightened out, or the Sunnis, or divide the oil," and Maliki is saying, "There isn't any group here that wants to talk about those things." Even the division of the country, they want to put 18 months along the trail. Those are not our timetables; those are Iraqi timetables.

So if there's going to be some intersection, it ought to be politically, to strengthen at least whoever is there. And Maliki, for the time being, is the guy.

WALLACE: Senator Levin, there are a variety of ideas out there about what conceivably could be done to change the situation, to make it better. We've assembled at least part of the menu, and let's put it up on the screen.

Partition of the country into three autonomous regions with a weak central government; a phased withdrawal starting right away; allowing the Iraqi military to stage a coup and install a different leader, a strong man; and sending in still more U.S. troops.

You know, like a Chinese restaurant, Senator Levin, what would you order from that menu?

LEVIN: Well, what I would do is what a number of us have been proposing for a long time, what 40 of us -- all the Democrats and one Republican -- in the Senate voted for it, which is to notify the Iraqi leaders that we're going to begin a phased withdrawal by the end of the year. That's not immediately. It's not precipitous. It's to tell them that they've got to take hold of their own nation.

And what the president told Maliki on the phone just a week ago -- it was not whispered to him. We were informed, the American public, what the president told Maliki a week ago, which is, "You have our full support." He pledged full support to Maliki.

That is the wrong way to go. That's not pressure on Maliki. That's an unconditional statement of support.

What we need to do is put pressure on the Iraqis to do what only they can do, which is to make the political compromises on power and on oil resources, so that they can become a nation.

If they don't want to do that, if they're going to have a civil war, we have to tell them, "You're going to do that without us." But we have got to begin to leave Iraq, not precipitously, not cut and run, but by the end of the year.

WALLACE: Senator Warner -- and we're about to run out of time in this segment, but let me ask you to respond to that. I mean, you talk about getting tough with Maliki and putting pressure on him. Would announcing we're going to begin -- not a timetable and we'll get them all out by July, but we're going to begin pulling troops out, would that send the right message?

WARNER: No, I think not. We should not set timetables. We should not indicate a fixed lock-in, because the situation is very dynamic. It's gotten worse. It's gotten fractured. You've got Shia on Shia now, Sunni on Sunni, Al Qaida moving into al-Anbar. This is a fragile situation.

We've got to remain confident that we can make this government work -- not victory this, that or the other thing -- make the government work, so it can exercise the levers of sovereignty.

One other pressure on Maliki came this week. I admire General Caldwell, who stood up before the world...

WALLACE: Chief spokesman for U.S. forces in Iraq.

WARNER: Correct. And he said, "It's disheartening that the Baghdad campaign, one in which we put 12,000 troops, one in which we expected the Iraqi armed forces to send four battalions -- they only sent two." Our military is being very frank and credible with the Iraqi government and Maliki. Get rid of those militias now, not tomorrow -- now.

WALLACE: Senators, we need to take a break here, but when we come back, North Korea and the bomb: Is diplomacy the answer? And what's really at stake in the November election.

We'll be back in a moment.

WALLACE: And we're back now with Senators Lugar, Biden, Warner and Levin to talk about North Korea and other trouble spots.

Senator Levin, you and Senator Biden have called for the U.S. to have direct, one-on-one talks with Kim Jong Il and the regime in North Korea. But when you see what's happened this week where the Chinese sent a top diplomat to deliver a very strong message to the North Korean regime, isn't it just possible that the president's diplomatic approach is, in fact, working?

LEVIN: Well, we obviously want to work with the Chinese, and we want to try to do anything we can to get the Chinese and the Russians to put some pressure on North Korea obviously. But that is not inconsistent with our having direct talks with the North Koreans. As a matter of fact, the Chinese and the South Koreans are allies, and South Korea want us to have one-on-one, direct discussions with the North Koreans.

That can be part of a multilateral strategy. It's not inconsistent to say that we want to keep our group together and we want to coordinate with the South Koreans and the Russians and the Chinese to say that we also, since they want us to talk to the North Koreans and the North Koreans want to talk to us, to have discussions with the North Koreans.

There's no inconsistency. It's another false choice which the president has presented to the American people: We either have to go it alone with North Korea or we have to work with the other countries that have the same position we do.

Well, there's a third approach here, which is, as part of a coordinated strategy, that we talk with the North Koreans and obviously coordinate the message. And we don't have to give them anything, but one- on-one discussions would be fruitful here, and we ought to do it in conjunction and coordination with our friends and allies.

WALLACE: But, Senator Lugar, isn't that, in fact, what we already have? Hasn't the U.S. already agreed -- and, in fact, haven't we had bilateral talks on the side of the six-party talks?

And does it make sense -- in the end, can the U.S. really accomplish anything with North Korea? Or, in effect, do we have to make it a regional problem with the neighbors, like Japan and South Korea and China getting involved -- all countries that have a lot more leverage with Pyongyang than we do?

LUGAR: Well, it's very important we have all of the countries, but my gut feeling is, at the end of the day -- and I don't know which day, which week -- there will be an American presence talking to the great leader and his people and saying, in essence, in terms that they understand, "We are not going to overthrow you. We are not involved in regime change. You're going to stay."

Now, the problem is, how do we work then with the Chinese to continue to get you the fuel and the food? How do we work with the South Koreans so there's some trade, some outlet for you?

But, in essence, we're for real, and we want you to dismantle whatever you're doing at Pyongyang, and quite apart from anything in the nuclear highly enriched uranium and some verification of this, but that's the deal.

WALLACE: But you're suggesting, Senator Lugar, a stepped-up, bilateral conversation between the U.S. and North Korea?

LUGAR: I believe that is going to happen. I hope it happens sooner rather than later. But I think it is inevitable, if this is to be resolved diplomatically.

Otherwise we're going to face problems, as the Japanese have become more militant; the South Koreans go through all sorts of gyrations in their policy; the Russians stand aside, tweaking the lion's tail. This is going to be a mess.

It's useful to have everybody there, and the Chinese especially, because they really have a stake in it. Every day they're pouring Chinese resources in there to keep North Koreans from coming into China.

WALLACE: Senator Biden?

BIDEN: The chairman is exactly correct. He said that back in '03. I've said that back in '03.

Look, it's either you want regime change or conduct change. Let's get something straight here: You don't say to somebody, "By the way, put down the very thing that you can keep us out of your hair militarily, and, by the way, after you put it down, we're going to take you out." Just rationally, doesn't work very well. And every single party we're working with, every one of them, from Japan to Korea to Russia, has encouraged us privately to talk directly with North Korea -- Carl Levin's point.

So, it seems to me, we step up to this.

And, by the way, it would be fine if the president had an alternative plan. How's he going to change the regime? Is he going to go to war? Does he have the capacity while he's locked down in Iraq, while we're worrying about Iran?

And keep in mind, Iran is watching very closely how we handle this.

WALLACE: I want to get to Iran in a second.

But, Senator Warner, do you join the Greek chorus here, that the president's policy is wrong on North Korea?

WARNER: I think the president has done a very commendable job on North Korea. I really do. Secretary Rice and our negotiators have handled it just correctly.

Let's remind ourselves, I served in the Korean War in the Marines -- no great footnote in history. But we have, in 1953, we reached an armistice, and we're still not able to negotiate a final settlement of that conflict.

It's in our interest to have a nuclear-free peninsula. It is in our interest not to provide a basis through North Korea's pushing ahead on nuclear weapons, to have Japan or South Korea think of it.

The president was right: Negotiations must be left to the six party talks. Conversations on the side take place, as all of us know, in diplomatic areas. That's fine, conversations. Negotiations, he's been right, leave it to the six. Because we do not want the other powers to point to us and say, "You didn't handle this right, USA. It's your fault; now you take care of the problem."

China has the leverage, as Senator Lugar said, with the energy and the food. South Korea has leverage because of their bilateral relationships. Those countries -- and I think China has been very responsible in coming forward and applying pressure.

Leave it as it is. The administration did a good job.

WALLACE: Let's turn to Iran.

And, Senator Biden, you brought that up because Secretary of State Rice said this week the fact that we got this united 15-0 vote out of the U.N. Security Council, the apparent willingness to enforce it -- we did see the Chinese get a little tougher than I think a lot of us expected with North Korea this week -- sends a message to Iran, "If you continue with your uranium program, you're going to have problems too."

On the other hand, when she met yesterday with the Russian foreign minister, he said, "I don't support sanctions."

Diplomacy, as we now have it, as the track that we're on, is that going to work or not work with Iran?

BIDEN: It can work if we increase on that track the willingness to directly talk, as well.

And, look, John Kennedy said a long time ago, we should never negotiate out of fear, but we should never fear to negotiate. The bottom line here is, if regime change is the operative element of this administration's policy, you are never going to get to the point where you end up with a diplomatic solution.

There may be no diplomatic solution, in the end. That's possible. We may have crossed the line, or they may have crossed the line.

But what's going to happen, I suggest to the chairmen, is while we fool around with this, you're going to see Japan go nuclear, and you're going to see China react to Japan going nuclear, and you're going to see a chain of events set in motion that are going to be significantly damaging to the next generation of Americans.

And so, it seems to me we should get off this wicket of suggesting that we won't talk. I mean, what are we afraid of in talking?

WALLACE: Let me bring in -- it's a good question. Let me bring in Senator Lugar.

Do you also support one-on-one, direct talks with Iran?

LUGAR: I think that would be useful, but I think even more useful right now would be, as a part of our negotiations with Iran, to bring together the members of the Security Council, Germany, the nations that surround Iraq, including Iran -- that is, bring in Iranians into a conversation about Iraq.

Now, regardless of whether we have timetables for withdrawal, whether our troops come back as opposed to intensively going into neighborhoods in Baghdad, there's got to be some perimeter defense here of Iraq, some physical integrity. That's important to Iran.

I would just change the subject a little bit. I would say, "Iranians, we have something to talk to you about that's very important to you existentially." And that may not get to the nuclear thing, but I think it does indirectly. After a while, you have at least some basis on which they have the integrity of their country.

WALLACE: Finally -- and we've only got a couple of minutes left -- I want to just talk briefly about politics. And I'd like to do it, if possible, in as nonpartisan a way as we can.

(LAUGHTER)
I know there's a lot of talk in the park -- I know Senator Warner's going, like, "Good luck to you."

But I know there's a lot of talk: Republicans saying the Democrats want to cut and run; Democrats saying Republicans want to mindlessly, you know, stay the course.

Senator Warner, what's at stake in this election? If Democrats gain control of one or both houses of Congress, what's going to change? And, if so, what's going to be wrong with it?

WARNER: Well, the dynamics will change markedly, because you have a whole framework of new personalities taking over the committees. I happen to have a lot of respect for Carl Levin, and I do for most of my colleagues and, indeed, this gentleman on my right. We've gone toe to toe many times.

So I'm not -- look, let's focus on the House. I think the reality is that the Senate...

WALLACE: But what would that mean for U.S. foreign policy?

WARNER: Beg your pardon?

WALLACE: What will change for U.S. foreign policy?

WARNER: Well, the nations of the world will have to become adjusted to the various chairmen. Let's put the Senate to one side. I'm confident we're going to hold that. The House is where the question mark is. And there you've got a framework of chairmen coming in, which gives us all a little pause to figure out just which direction is it going to go.

But that's America. The people will have spoken. You've got to remember, in all of these things, the power is not in the presidency or in the Congress. It's in the people of the United States. If they speak, then we have to work within the framework that they've established with these new individuals.

WALLACE: And very briefly, Senator Biden, what's at stake, in terms of foreign policy?

BIDEN: Very briefly, if the Democrats regain control, you're going to see 12 to 14

Republicans freed up to go out and join, in a bipartisan way, to tell the president, "We are seriously off course." If the Democrats don't make gains, it will be a reaffirmation for this administration, stay the course. And I believe that would be disastrous.

WALLACE: And you think there are a dozen Republicans champing at the bit?

BIDEN: I know there are at least three that have approached me before we left.

WALLACE: I don't know -- they're both...
BIDEN: No, neither one of these two gentlemen.

(LAUGHTER)

WALLACE: Neither one of those.

Senators Lugar, Biden, Warner, Levin, we want to thank you all so much. I thought it was a very useful conversation. Appreciate you coming in today.

END

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