Bob Woodward sat down with Mike Wallace to talk about his new book, State of Denial, and had many, many interesting things to report. The title of the book really says it all; the Bush administration is so convinced that what they're doing in Iraq is right that they refuse to acknowledge the reality on the ground. What's worse, they refuse to level with the American people.

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(video and review - Mike L. Transcript - Jamie H.)

Full transcript below the fold.

>> Wallace: President Bush's former chief of staff, Andy Card, said the Bush presidency will be judged by three things: Iraq, Iraq, Iraq. Bob Woodward, of Watergate fame, reports that. He's just completed his third book on the Bush presidency, "state of denial." Woodward spent more than two years, interviewed more than 200 people-- including most of the top officials in the administration-- and he came to a damning conclusion: That for the last three years, the white house has not been honest with the American public.

>> Bob Woodward: It is the oldest story in the coverage of government: The failure to tell the truth.

>> Wallace: When you say the Bush administration has not told the truth about iraq, what do you mean?

>> Woodward: I think probably the prominent... most prominent example is the level of violence.

>> Reporter: Not just the Sunnis against Shi'as, that gets reported every day, but attacks on U.S. And allied forces. Woodward says that's the most important measure of violence in iraq, and he unearthed this graph-- classified secret-- that shows those attacks have increased dramatically over the last three years.

>> Woodward: Getting to the point now where there are 800, 900 attacks a week. That's more than 100 a day. Four attacks an hour, attacking our forces.

>> Wallace: Woodward says the government had kept this trend secret for years before finally declassifying the graph just three weeks ago. And Woodward accuses president Bush and the pentagon of making false claims of progress in Iraq, claims contradicted by facts that are being kept secret. For example, Woodward says an intelligence report classified secret from the joint chiefs of staff concluded-- in large print-- that the Sunni Arab insurgency is gaining strength and increasing capacity despite political progress. And insurgents retain the capabilities to increase the level of violence through next year. But just two days later, a public defense department report said just the opposite: "Violent action will begin to wane in early 2007." What are we supposed to make of that?

>> Woodward: The truth is that the assessment by the intelligence experts is that next year-- now, next year's 2007-- is going to get worse, and in public you have the president and you have the pentagon saying, "oh, no, things are going to get better." Now there's public and then there's private. But what did they do with the private? They stamp it secret. No one's supposed to know. Why is that secret? The insurgents know what they're doing. They know the level of violence and how effective they are. Who doesn't know? The American public.

>> Wallace: President Bush says over and over, as Iraqi forces stand up, U.S. Forces will stand down. The number of Iraqis in uniform today, I understand, is up to 300,000?

>> Woodward: They've stood up from essentially zero to 300,000. This is the military and the police.

>> Wallace: But U.S. Forces are not standing down. The attacks keep coming.

>> Woodward: They've stood up and up and up, and we haven't stood down. And it's worse.

>> Wallace: John Negroponte knows it's worse. He's the U.S. Director of national intelligence. And according to Woodward, Negroponte thinks the U.S. Policy in iraq is in trouble, that violence is now so widespread that the U.S. Doesn't even know about much of it, and that the killings will continue to escalate.

>> Woodward: He was the ambassador there in iraq, and now he sees all the intelligence. He believes that we're always going almost back to the beginning, miscalculated and underestimated the nature of the insurgency.

>> Wallace: Why?

>> Woodward: Why? There's this feeling, "how can a bunch of guys running around putting improvised explosive devices in dead animals and by the side of the road in cars cause all this trouble?"

>> Wallace: Woodward reports that a top general says defense secretary Donald Rumsfeld has so emasculated the joint chiefs that the chairman of the chiefs has become "the parrot on Rumsfeld's shoulder." And according to Woodward, another key general, john abizaid, who's in charge of the whole gulf region, told friends that, on Iraq, Rumsfeld has lost all credibility. What does that mean, he doesn't have any credibility anymore?

>> Woodward: That means that he cannot go public and articulate what the strategy is. Now, this is so important. They decide that the secretary of state rice will announce what the strategy is. This is October of last year.

>> Our political military strategy has to be to clear, hold and build. Clear areas from insurgent control, to hold them securely and to build durable, national Iraqi-- thank you-- iraqi institutions.

>> Woodward: Rumsfeld sees this and goes ballistic and says, "now wait a minute, that's not our strategy. We want to get the Iraqis to do these things." Well, it turns out George Bush and the white house liked this definition of the strategy, so it's in a presidential speech he's going to give the next month. Rumsfeld sees it. He calls Andy Card, the white house chief of staff, and says, "take it out. Take it out. That's not our strategy. We can't do that." Card says, "it's the core of what we're doing." That's two and a half years after the invasion of Iraq. They cannot agree on the definition of the strategy. They cannot agree on the bumper sticker.

>> Wallace: General john Abizaid , commander of all U.S. Forces in the middle east, you quote him as saying privately a year ago that the U.S. Should start cutting its troops in Iraq. You report that he told some close army friends, "we've got to get the 'f' out." And then this past march, general abizaid visited congressman john Murtha on capitol hill.

>> Woodward: John Murtha is, in many ways, the soul and the conscience of the military. And he came out and said, "we need to get out of Iraq as soon as it's practical." And that sent a 10,000-volt jolt through the white house.

>> Wallace: Yeah.

>> Woodward: And here's mr. Military saying, "we need to get out." And john Abizaid went to see him privately. This is Bush's and Rumsfeld's commander in iraq.

>> Wallace: Right.

>> Woodward: And john Abizaid held up his fingers, according to Murtha, and said, "we're about a quarter of an inch apart," he said. "We're that far apart."

>> Wallace: Abizaid and Murtha?

>> Woodward: That far apart.

>> Wallace: You report that after George W. Bush was reelected, his then-chief of staff, Andy Card, tried for months to convince the president to fire don rumsfeld. Why?

>> Woodward: To replace him. Because it wasn't working. Card felt very strongly that the president needed a whole new national security team.

>> Wallace: You write Laura Bush was worried that Rumsfeld was hurting her husband. Andy Card told her the president seemed happy with Rumsfeld. And the first lady replied, "he's happy with this, but I'm not." And later she said, "I don't know why he's not upset."

>> Woodward: What's interesting, Andy Card, as white house chief of staff, every six weeks set up a one-on-one meeting with laura Bush, set aside an hour and a half to talk about what's going on, what are the president's anxieties? Smart meeting.

>> Wallace: Uh-huh.

>> Woodward: And in the course of these sessions, the problem with rumsfeld came up and she voiced her concern about the situation.

>> Wallace: But Dick Cheney wanted Rumsfeld to stay. Why?

>> Woodward: Well, Rumsfeld's his guy and Cheney confided to an aide that if Rumsfeld goes, next they'll be after Cheney.

>> Wallace: Cheney stunned Woodward by revealing that a frequent advisor to the Bush white house is former secretary of state Henry Kissinger, who served presidents nixon and ford during the vietnam war.

>> Woodward: He's back. In fact, Henry Kissinger is almost like a member of the family. If he's in town, he can call up, and if the president's free, he'll see him.

>> Wallace: Woodward recorded his on-the-record interview with Cheney, and here's what the vice president said about Henry Kissinger's clout.

>> Dick Cheney: Of the outside people that I talk to in this job, I probably talk to Henry Kissinger more than just about anybody else. He just comes by, and I guess at least once a month I sit down with him.

>> Wallace: And the same with the president?

>> Woodward: Yes. Absolutely.

>> Wallace: President Bush is, i understand...

>> Woodward: A big fan of his. Now, what's Kissinger's advice? In iraq, he declared very simply: Victory is the only meaningful exit strategy. This is so fascinating. Kissinger's fighting the vietnam war again, because in his view, the problem in Vietnam was we lost our will. That we didn't stick to it.

>> Wallace: So Henry Kissinger is telling George W. Bush, "stick to it. Stay the course."

>> Woodward: That's right. It's right out of the Kissinger playbook.

>> Wallace: In his book, published by cbs sister company Simon and Shuster, Woodward reports that the first president Bush confided to one of his closest friends how upset he is that his son invaded iraq. The former president Bush is said to be in agony, anguished, tormented by the war in Iraq and its aftermath.

>> Woodward: Yes.

>> Wallace: And does he tell that to his boy?

>> Woodward: I don't know the answer to that. He tells it to brent scowcroft, his former national security advisor.

>> Wallace: You paint a picture, bob, of the president as the "cheerleader-in-chief," current reality be damned. He's convinced that he's going to succeed in iraq, yes?

>> Woodward: Yes, that's correct. Now...

>> Wallace: You believe that he believes?

>> Woodward: I do.

>> Wallace: How well do you know him?

>> Woodward: Interviewed him for the first two books for hours.

>> Wallace: And do you know what? There are people who are going to say, "loo woodward is savaging president Bush because he wouldn't see him for this book."

>> Woodward: That's not true.

>> Wallace: Well, he... he didn'T.

>> Woodward: He did not, and i asked. And I made it very clear to the white house what my questions were, what my information was. What could he say, that the secret chart is not right? That these things that happened in these meetings didn't occur? They're documented. I talked to the people who were there. Your producer, bob anderson, has listened to the tapes my interviews with people to make sure that it's not just "kind of" right, but literally right. This is what occurred.

>> Wallace: And Woodward says that no matter what's occurred in iraq, mr. Bush does not welcome any pessimistic assessments from his aides because he's sure that his war has iraq and america on the right path.

>> Woodward: Late last year, he had key republicans up to the white house to talk about the war and said, "I will not withdraw even if laura and barney are the only ones supporting me." Barney is his dog. My work on this leads to lots of people who spend hours, days with the president.

>> Wallace: Uh-huh.

>> Woodward: And in most cases, they are my best sources. And there is a concern that we need to face realism, not being the voice that says, "oh, no, everything's fine," when it's not. <