JEANNE MESERVE: Prime Minister Netanyahu, thank you for joining us. Secretary of State Madeleine Albright indicated this week that the U.S. would be taking a new, tougher stand towards you and your government on the issues of construction in Jerusalem, settlements, confiscation of Palestinian lands. Was any of that evident in your meetings with Mr. Ross?

PM NETANYAHU: First of all, that’s not what I understood the secretary’s speech to be about. She talked about the primacy of security and the importance that the Palestinian Authority take action against terrorism that would otherwise destroy the peace. And that was essentially what Mr. Ross talked about. He made it patently clear that he would not engage the Palestinians on political matters until they assured him and assured us that they would fight terrorism, as they promised and failed to do.

MS. MESERVE: Mr. Ross was moving from a meeting with you to a meeting with Mr. Arafat. Did you give him any message to take to Mr. Arafat?

PM NETANYAHU: It was exactly that same message. Unless this terrorism is quelled, is suppressed by Yasser Arafat, as he promised to do when he signed the Oslo Accords with my predecessor, Yitzhak Rabin, unless he keeps that basic promise, then the basic premise of Oslo, the Oslo Accords, collapses. Therefore, the talk that I had with Ross reflected that. This is the message that I give, and I hope he gives, to Yasser Arafat. "Fight terrorism for the sake of peace. If you don’t fight terrorism, peace will be endangered."

MS. MESERVE: Was there anything in your meeting with Mr. Ross which resembled progress or gave you the glimmer of hope that there soon would be progress?

PM NETANYAHU: We both hope that Arafat would fulfill this basic promise of fighting terrorism. I have to say that the Palestinian Authority must make a choice. It must decide what kind of regime it intends to be, a regime that fights terrorism the way that Jordan and Egypt fight terrorism, or a regime that abets terrorism, that supports terrorism, like Iran or Iraq. I hope that they make the right choice. And all our measures, all our actions, are geared to make them make the right choice.

MS. MESERVE: Did the U.S. ask you to ease any of the punitive measures that you have put in place against the Palestinians? And do you have any intention of doing that?

PM NETANYAHU: Well, we have two basic policies. One is to prevent the terrorists from coming and reaching the Israeli cities. God forbid if we have another attack. Who knows what the consequences would be if more innocent people are lost? And the second measures are designed to make the Palestinian Authority comply with the various promises that they made to fight terrorism, and they failed to do so.

I want to ask you, ask your listeners and your viewers from around the world, including in the United States, who would accept an arrangement by so-called peace partners who allow terrorist organizations to function five minutes away from the major cities of your country, have the terrorist organizations launch these attacks, have these attacks be perpetrated by terrorists, some of whom get blown up through that attack, others who return to the bases under the regime of the Palestinian Authority. That would be unacceptable in any country. It’s unacceptable in our case as well. It simply has to stop for the sake of peace.

MS. MESERVE: Will you be easing any of the punitive measures against the Palestinians in the near future?

PM NETANYAHU: As they indicate to us these are not punitive measures, first of all. We’re not dealing with punitive measures. If we wanted to punish people, believe me, we could go and adopt measures that are far more radical, far more extreme. We haven’t done so because we seek to give peace a chance.

MS. MESERVE: You’ve stopped movement. You’ve stopped shipment of goods. You’ve stopped payments to the Palestinians. Those aren’t punitive measures?

PM NETANYAHU: Wrong on two counts; not wrong on the third. Wrong on the two counts because we haven’t stopped movement. People, in fact, are able to bring in goods and medicine. The whole idea that we are starving the population is baloney. It’s hogwash. There is no starvation. There is no hunger. There is no shortage, because we make sure that the medicine and the goods and the food reaches the Palestinian areas.

And I’m amused that they put forward before the cameras people who complain about starvation. It’s all a show. It’s all a front. And I personally will make sure that all the trucks and all the provisions will arrive at the Palestinian areas. The only thing they have to do is open the gates, unless they want to play with a self-imposed hunger which is meant for political purposes. So, number one, we’ll ensure that the population receives its due.

Number two, yes, we have stopped payments to the Palestinian Authority, which affects, first of all, their police. Their police has been used and their head of police has been the chief organizer of terrorist acts against us. These very police have used weapons to fire at busloads full of Israeli children. And happily, the bullets missed. They hit the bus but they didn’t hit the children. Can you imagine that we’ll go on paying the salary of these policemen? So we said, "Yes, we’re willing to go on and pay, providing you stop this terrorism." If they comply, we’ll ease up on these various measures.

What we’d like to see is the beginning of compliance with security. To look at us, to ask us, who are applying the same measures that you apply, financial measures, against regimes that supported terrorism, like Iraq or Iran you froze their assets. You applied very heavy economic sanctions to them. People didn’t ask, "Why are you doing this to the Iraqi people? Why are you doing this to the Iranian people?"

The answer is America wasn’t interested in targeting the Iranian or Iraqi people. You were targeting the regime and you were telling them, "Stop supporting terrorism." That is what we are telling Yasser Arafat and the Palestinian Authority. "Stop supporting terrorism if peace is to have any chance at all."

MS. MESERVE: Mr. Arafat gave an interview yesterday and raised some questions about you and the peace process. Let’s listen to an excerpt.

YASSER ARAFAT: (From videotape.) I am dealing with him as my partner. But you have to ask him, is he dealing with me as his partner or not? Is starvation for the Palestinians, is humiliating the Palestinians, is it part of the peace process? You have to ask him.

MS. MESERVE: So I ask you. Are you a partner in the peace process still?

PM NETANYAHU: Of course, we are. And we are not only a partner, but we’re an eager one. But we have to find a real acceptance of the terms of peace. Now, again, I’m not referring to this bogus charge of starvation. I’m talking about real things that we have all seen. We’ve seen terrorist strikes, with the help of Palestinian-based organizations, strike at the heart of our cities.

MS. MESERVE: Do you know that was the case in Jerusalem? Do you know that that was Palestinian-based?

PM NETANYAHU: Well, we certainly know the evidence that we have right now, I think, is not yet conclusive but points directly to the assistance of organizations, terror organization, based in the Palestinian territory. The evidence is becoming comprehensive. We still lack the identity of the perpetrators, but we have little doubt that organizations such as Hamas and that is the chief suspect was behind the recent attack, and not only the recent attack.

MS. MESERVE: Mr. Arafat indicates that Hizbullah might have been behind the Jerusalem attack. Your read on that? And he says he heard this, by the way, from Israeli security forces.

PM NETANYAHU: That is false. No Israeli security officer told him that, as is false the notion that he has made 100 percent effort. We’ve given him a list of some 150 terrorist leaders and activists, and he has locked up, by our recent count, about 11, probably for safe custody, not even for interrogation, to protect them against us, from interception by Israeli security forces. So all these claims are not true.

What we want to see is that those organizations that make it possible for terrorists from either the outside or the inside to operate, that those terrorist organizations are dismantled. And I have to tell you that that was the whole idea of Oslo. The late Yitzhak Rabin described the Oslo deal as saying, "We give them territory; we give the Palestinian Authority territory. And in turn, they promise to fight terrorists who would emanate from that territory."

What we’ve seen happen is the exact opposite. We’ve seen the growth of terrorist organizations like Hamas and Islamic Jihad. We’ve seen them multiply their numbers. We’ve seen them increase their headquarters. We’ve seen them develop laboratories for these terrible explosives that are applied against our citizens. We’ve seen it grow, terrorism grow, rather than diminish in the Palestinian-held territories because the Palestinian Authority has failed to keep that promise of fighting terrorism.

MS. MESERVE: Now, you’re a politician. Do you recognize, as a politician, that there are limits to how much Mr. Arafat may be able to do to crack down on terrorism, particularly when your government is imposing a collective punishment on his people?

PM NETANYAHU: Well, Jeanne, I hate to say this. When the previous government, that was the most conciliatory government, the softest government that the Palestinians could ever dream up, was giving them all these concessions, terrorism rose and rose and rose. And you and CNN covered these devastating attacks on Israeli cities, on our buses, in our marketplaces, well before this government came into being, well before we started to take firm action.

I believe that it’s the absence of firm action against terrorism that makes terrorism grow. It’s the absence of, if you will, pointing a finger to the Palestinian Authority and telling them, telling them like it is. "Stop supporting these organizations. Stop allowing them to operate." That has been the American posture against terrorist-supporting regimes. It’s the right approach. It’s the approach that we take as well. And that is what has been missing. That is what is required not only from us. It’s required from you as well.

MS. MESERVE: And we have to leave it there. PM NETANYAHU, thank you for joining us today.

PM NETANYAHU: Thank you.