This is a partial transcript of "The Big Story With John Gibson," January 19, 2007, that has been edited for clarity.

JOHN GIBSON, HOST: The gloves are off: Hillary Clinton is reported to be already digging up the dirt on Barack Obama.

The New York senator has reportedly outed Obama's madrassa past. That's right, the Clinton team is reported to have pulled out all the stops to reveal something Obama would rather you didn't know: that he was educated in a Muslim madrassa.

I was criticized on this show for outing Obama as a smoker, but look at what some anti-Obama Democrats are doing to her political rival now. They are playing the Muslim phobia card.

Is this just the beginning? Is the Obama honeymoon officially over? What other dirty little secrets will come out as they battle it out in the race for the White House? With me now is Republican strategist Terry Holt.

Terry, this is appearing on a Web site today, Insight magazine, which is a subsidiary of The Washington Times. Here's the question. I'll put it up on the screen: Barack's madrassa past. He says that "during the five years that we would live with my stepfather in Indonesia, I was sent first to a neighborhood Catholic school and then to a predominately Muslim school." That's from his book, "The Audacity of Hope."

Now in the meantime, this is what Democrats are saying, according to Insight magazine. They're looking into his background. They're saying: He was a Muslim. He concealed it. His opponents within the Democrats hope this will become a major issue in the campaign.

Now, we have heard about dirty politics before. Republicans aren't involved in this one. What do you think about what's going on over there?

TERRY HOLT, REPUBLICAN STRATEGIST: John, the last time I checked, there was still a freedom of religion in this country. And this is either a despicable act by an absolutely ruthless Clinton political machine. We know that they are capable of doing this. But it wasn't directly linked to Hillary Clinton. If it wasn't her, then certainly she should disavow it because I think we have spent an awful lot of time in this country trying to tamp down anti-religious sentiments.

But you know, it's also, if you took a page out of the Clinton book and you are really shrewd and you were Barack Obama, you might want to put this out yourself so that you could deal with it early in the political campaign and get it over with. I don't know.

GIBSON: Let me show you what the press secretary to U.S. Senator Barack Obama said today in a statement about this story. They said: "The idea that Senator Barack Obama attended some radical Islamic school is completely ludicrous. Senator Obama is a committed Christian and attends the United Church of Christ in Chicago."

Nonetheless Terry, what damage does it do to Obama to have the word madrassa attached to his name?

HOLT: Well, I think that Barack Obama is such a white-hot political property right now that I'm not sure that it does any long-term damage. He may have to explain this, but, you know, Obama's story is unique to the political field at this point having been educated overseas.

I would also point out that a madrassa before it was politicized and really taken over by the fundamentalists primarily from Saudi Arabia, it was nothing more than a parochial school, and Barack Obama was in school 40 years ago. So I'm not sure that this is a campaign killer, but it does, I think, maybe put on him the burden of explanation, a little bit more about his bio.

GIBSON: Terry, this is a hotly contested race. Senator Clinton thought she had it in the bag and that she was the nominee already. He's made a surprise run at her. Does this give his team a warning of what sort of things are coming before he could possibly capture the nomination?

HOLT: Absolutely. You know, the Clinton team and the machine, make no mistake, it's still in place. They used to call themselves the masters of disaster. And if Barack Obama gets into the race against Clinton, I think that he can count on no small amount of disaster being forced upon him by running against one of the most effective and one of the most negative political machines ever assembled in this country.

But you know what? If you're going to run for president, you have to be prepared for everything and anything to be thrown at you, and in many ways voters are looking not so much for the facts about what you have done in your past, but really how do you handle it? Do you handle it with poise? Do you handle it with honesty and dignity? If he handles this well I'm not sure that this puts him in a corner he can't escape from.

GIBSON: Terry Holt on the madrassa bomb dropped on Barack Obama. Terry, thanks very much.

HOLT: Thanks, John.

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