WASHINGTON, Jan. 13, 2009 -- After a warm reception during the morning session on Capitol Hill, Sen. Hillary Clinton faced tougher questions this afternoon about potential conflicts of interest her husband's fundraising could pose if she is confirmed as secretary of state.

Concerns about former President Bill Clinton's financial ties to foreign governments were expected to be the biggest hurdle in the New York senator's otherwise noncontroversial nomination to be the country's top diplomat.

Clinton had tried to defuse the issue before the hearing by promising in a Memorandum of Understanding that donors to her husband's Clinton Foundation would be made public in the future.

But Republicans sought additional assurances during confirmation hearings today before the Senate Foreign Relations Committee, asking that Clinton agree to more stringent reporting rules concerning what donations her husband would accept, what would be disclosed and how frequently that information would be released.

Sen. David Vitter, R-La., specifically called on Clinton to provide more reporting on contributions to the Clinton Global Initiative, which he said was not included in the Clinton Foundation's donation reporting.

Clinton balked, saying the foundation is going "beyond even what the rules would call for" in disclosing and preclearing donors.

"I recognize that these are unique circumstances, to say the least," Clinton said. "It is not unique, however, for spouses of government officials to work, and there are very well-established rules."

Clinton resisted Vitter's insistence on tougher language, saying, "There is no intention to amend the MOU. It has been worked out between the transition and the foundation."

Earlier Tuesday, Richard Lugar, R-Ind., said he worried about the "perception problems" of having Clinton in the post as Bill Clinton continues his overseas fundraising for his foundation. Lugar asked that the former president "foreswear" taking any more donations from foreign governments.

"I share the president-elect's view that the activities of the Clinton Foundation and President Clinton himself should not be a barrier to Sen. Clinton's service," Lugar said. "But I also share the view, implicitly recognized by the Memorandum of Understanding, that the work of the Clinton Foundation is a unique complication that will have to be managed with great care and transparency."

The panel's leader John Kerry, D-Mass., concurred that Lugar's concerns about the foundation's donations were not partisan, but reflect the concerns of committee as a whole.

Still, in their opening statements, both Lugar and Kerry expressed support for Clinton's nomination. Lugar even called Clinton "the epitome of a big leaguer."

Although Clinton's daughter Chelsea was seated behind her, Bill Clinton watched the hearing from the Clinton's Washington home.

The panel hopes to vote on Clinton's nomination Thursday.

Clinton Talks Iran and Israel

The clash over donations to her husband's charity was the only bump in an otherwise smooth appearance by Clinton before her Senate colleagues in which she outlined a foreign policy that indicated she would break sharply with the Bush administration.

Clinton described a geopolitical strategy that places greater emphasis on diplomacy and a strategy she called "smart power."

"I believe that American leadership has been wanting, but is still wanted," she said. "We must use what has been called smart power, the full range of tools at our disposal -- diplomatic, economic, military, political, legal, and cultural... With smart power, diplomacy will be the vanguard of foreign policy."

Clinton showed up at the hearing having crammed in recent weeks for the oral exam, easily handling in detail a wide range of subjects that included Darfur, Georgia, international women's rights, OPEC and energy policy.

She said the administration of President-elect Barack Obama will take a new tack on such thorny issues as Middle East peace and Iran's nuclear ambitions.

Clinton also said an Obama administration will focus on issues the Bush administration wouldn't touch, including climate change as a threat to security.

And she assured the panel that under a Clinton-run State Department, no option is off the table regarding Iran.

"It is going to be United States policy to pursue diplomacy -- with all of its [tools] -- to do everything we can to prevent Iran from becoming a nuclear weapon state. As I also said, no option is off the table," Clinton said.

While promising a "new strategy… that we believe will bear fruit," Clinton was careful to say that she has "no illusions that engaging Iran could predict results."

Clinton also commented for the first time on Israel and Palestinians, saying, "The president-elect and I understand and are deeply sympathetic to Israel's desire to defend itself under the current conditions, and to be free of shelling by Hamas rockets. However, we have also been reminded of the tragic humanitarian costs of conflict in the Middle East, and pained by the suffering of Palestinian and Israeli civilians."

Addressing an issue that had been a point of contention between Clinton and Obama during the Democratic primaries, Clinton also spoke about whether she and Obama would meet with enemies without preconditions. At one point Clinton had called Obama's position to meet without preconditions "naïve."

Today, she said preconditions before talking to groups like Hamas or Hezbollah were a must -- and said she was on the same page with the president-elect in her stance.

"When it comes to non-state actors like Hamas, as I said at the very end of the morning session, there are conditions," Clinton said this afternoon. "Hamas must renounce violence. They must recognize Israel, and they must agree to abide by all previous agreements. There are conditions that are usually part of the preliminary discussion that would lead to any kind of negotiation. The president- elect believes that he has the right to claim the opportunity to speak with anybody at any time if it's in furtherance of our country's national interest and security. But he fully appreciates the preliminary work that has to be done in order to tee up any such discussion."

On Iraq, Clinton reiterated Obama's intentions to safety redploy troops, but signalled changes have already begun by announcing that the current U.S. ambassador to Iraq, Ryan Crocker, would be leaving his post for "health and personal reasons."

And on another pressing problem, de-nuclearizing North Korea, Clinton said of the six party talks, "It is a framework that the president-elect and I believe has merit."

In laying out her foreign policy priorities and values, Clinton highlighted her "steadfast faith in this country," the need to renew America's leadership on the global stage, and her differences with the Bush administration.

"Foreign policy must be based on a marriage of principles and pragmatism, not rigid ideology. On facts and evidence, not emotion or prejudice," she said.

Clinton Foundation and Foreign Donors

As expected, Clinton faced pointed questions during the confirmation hearings about her husband's post-presidential financial ties.

The Clinton Foundation has raised hundreds of millions of dollars from some 200,000 private donors -- including the governments of nations with an enormous interest in U.S. policy, including Saudi Arabia, Qatar, Kuwait and Brunei.

The names of those donors have been made public, and future donations will also be disclosed, under an agreement reached by the Clintons and the Obama team to clear the way for her nomination. The agreement also requires the State Department to pre-clear future donations from foreign interests.

Lugar, the committee's top Republican, said months ago that he planned to use the hearing to press for more extensive disclosure requirements.

"I suspect ... that I'm not alone in suggesting there will be questions raised and will probably be legitimate," Lugar told ABC's George Stephanopoulos on "This Week" in November.

Before the hearing, Andy Fisher, a Lugar spokesman, said the senator's concerns remained. He pointed out that The New York Times editorial page called for stricter disclosure rules, including review of all foundation donations by the White House counsel's office.

"It's ripe for potential conflicts of interest, or at least appearance problems. So, every step needs to be taken to make sure there isn't a problem," Fisher said.

"That said, it's not going to be something that's going to be derailing the nomination," he said. "The Senate continues to have a very good relationship with their colleagues, when they're up for nomination."

Those questions aside, the hearings predictably did not produce major fireworks. No roadblocks have emerged to suggest Clinton will have any trouble winning Senate confirmation this week.

"She's a very competent and qualified candidate," said Sen. Johnny Isakson, R-Ga., a member of the panel that questioned Clinton. "I've seen her work in the Senate. I've been on the same committees. She's proven herself to be a hard worker and a very competent individual."

In part because Clinton is a colleague who has earned respect from her fellow senators, Republican senators and aides said before the hearing even began that they didn't expect the hearing on her nomination to become an extended referendum on Clinton-era scandals, or on Clinton's extended primary battle with President-elect Barack Obama.

Aides said they didn't expect the hearing to be anywhere near as contentious as Condoleezza Rice's hearing for the same post in 2005. That forum became a proxy battle over the Iraq war, with Democrats pressing her to acknowledge mistakes in the run-up to the conflict.

Kerry has scheduled just one day of hearings for Clinton, with a vote on her nomination expected Thursday.