WOLF BLITZER: I spoke with the Israeli foreign minister Tzipi Livni about her country’s tensions with Iran, and the Israeli-Palestinian peace process.

WOLF BLITZER: Iran is insisting that its nuclear program is being used for peaceful purposes, but Israel is warning the time for engaging Iran over the issue may be running out. I spoke with the Israeli Foreign Minister Tzipi Livni about her country’s tensions with Iran, and the Israeli-Palestinian peace process.

BLITZER: Foreign Minister, thanks very much for joining us. Welcome back to Late Edition. Good to have you back in the United States. Let’s talk about Iran, right now.

I know Israel is deeply concerned about Iran’s nuclear program. The Ayatollah Ali Khamenei said on Wednesday, that "The Iranian nation, by depending on its useful experience and advantages of 30 years of resistance, does not pay any attention to such talk and will continue with its path." They’re showing absolutely no indication that they’re going to stop enriching uranium. So the question to Israel: At what point do you give up on sanctions and diplomacy and begin thinking about military action?

LIVNI: It is clear that Iran doesn’t pay attention to talks. This is a clear message to the international community to continue to with real and effective sanctions. Clearly, Iran is a threat, not only to Israel, but this is a global threat. And the international community should act accordingly.

BLITZER: Well, at what point though, assuming you continue with sanctions, how much time do you have? Yesterday, I spoke with your defense minister, Ehud Barak. And he thought that there was a window of 15 months to 36 months until the Iranians crossed what he called, "the line of no return". Do you accept that window?

LIVNI: I think that time is of the essence even more. While we are talking, Iran continues. Any kind of hesitation coming from the international community is being perceived by the Iranians as weakness. And these kinds of messages that talk doesn’t matter, need to change in the attitude of the international community. Intensive and sanctions can be effective.

Iran is a threat to its neighbors, as well, and the international community is being watched not only by Iran, but also by Iran’s neighbors. And when the international community shows hesitation, this is perceived as weakness. We live in a neighborhood in which you either beat the bully or join in. And I don’t want to Iran’s neighbors, who are part of the camp of moderates, to join Iran. So what we are doing today is of the essence and we shouldn’t wait to what we call, "the point of no return".

BLITZER: So, you’re saying that you don’t even give them 15 months, necessarily. You think it’s a more urgent matter?

LIVNI: Yes.

BLITZER: How much time do you think Israel and for that matter, the United States, has?

LIVNI: We need to understand that we need to act today in terms of sanctions. Sanctions can be effective as long as the Iranians and the entire world understand that all the options are on the table. This is what we need to do today. We cannot postpone it. We cannot wait for the Iranians to decide whether they are willing to talk with the international community. And the message coming from the Iranians is clear. Sanctions are needed today.

BLITZER: Recently, the Chairman of the U.S. Joint Chiefs of Staff, Admiral Michael Mullen, on July 2nd, said, "This is a very unstable part of the world and I don’t need it to be more unstable. Opening up a third front right now would be extremely stressful on us." He was referring to the first front in Iraq, and the second front in Afghanistan. To open a third front in Iran right now, he said, would be extremely stressful on the U.S.

And I’m going to read another quote to you from the Director General of the International Atomic Energy Agency, Dr. Mohamed ElBaradei. He says, "In my opinion, a military strike will be the worst. It will turn the Middle East to a ball of fire."

How worried are you that an Israeli military strike for example, could turn the entire region into what Dr. ElBaradei calls, a "ball of fire"?

LIVNI: The choice in the Middle East is choice between bad options. This region is the region that creates some threats, like the Iranian threat, to the entire world.

Now, let’s talk about the situation when the world is not doing what needs to be done. The world cannot afford a nuclear Iran, which places weapons of mass destruction everywhere in this region – in the hands not only of states, but also of terrorist organization. The world doesn’t want to see those who are now part of the camp of moderates becoming part of the camp of extremists. This is something that nobody can afford.

So, by waiting, we are not creating a better situation, but a worse one. And sanctions are effective only when the Iranians know that there are other options. But, let’s focus on the sanctions today.

BLITZER: There is a lot of political uncertainty in Israel right now, with potentially elections coming up, a new prime minister. Do you realistically believe that President Bush’s deadline for the end of this year, for an Israeli-Palestinian agreement is still realistic at all?

LIVNI: I supported and still deeply support the Annapolis process. We decided and promised to make all efforts to reach a peace treaty by the end of the year. We are making all efforts to do so. But, what is more important  now is the understanding between Israelis and the Palestinians that we are on the right track. It needs to be understood that the Annapolis process launched these negotiations after seven years of intafada, of violence in the region – violence of Palestinians against Israelis. And now we have these peace talks, which, according to my Palestinian colleagues, are the most serious and advanced peace talks for many years. So, we need to keep this track. We need to continue negotiating. The timeline is less important. What is more important is the content and the fact that we continue to do so in order to reach a peace treaty.

BLITZER: Would you be willing to give up the Golan Heights to reach a peace treaty with Syria?

LIVNI: As to Syria: What he have now is not even the beginning of direct peace talks between Israel and Syria, but indirect talks in order to find out whether this is possible. It is important for the Syrians to understand that peace in the region doesn’t mean only embassies or getting territory from Israel, but also that they need to change their destructive hold in the region.

BLITZER: Excuse me for interrupting. But if they were willing to do that, to reach out and to make full peace with Israel along the lines of Egypt and Jordan, would you be willing to give up the Golan Heights?

LIVNI: Wolf, my habit is not to negotiate with interviewers in Israel, or elsewhere. The idea of peace means of course, territorial concessions. But, it is more important to understand that peace means that Syria should stop now the transfer of weapons from Syria, to Lebanon, to Hizbullah, and Syrian support of terrorist organizations, including the Hamas headquarters in Syria. Their connections with Iran don’t help either.

So, since this is a point in which we need to find out whether Syria is serious in terms of peace, the most important thing right now, is to put all of this on the table, not only by Israel, but the entire international community and ask Syria whether they want peace negotiations just to get legitimacy from the international community, or, are they serious enough? And in order to show that they’re serious enough, they need to stop what they are doing right now in supporting all these terrorist activities in the region.