Here is a transcript of the speech from CFR's web site, no where can I find a basis for the inflammatory paragraph you posted. Sorry for the long post

(My emphasis added)

Making America Secure Again: Setting the Right Course for Foreign Policy

Speaker: Senator John Kerry, D-Mass.; Democratic Candidate for President
Presider: Peter G. Peterson, Chair, The Blackstone Group

Campaign 2004 at the Council on Foreign Relations
New York, New York
Wednesday, December 3, 2003

PETER G. PETERSON: Good afternoon. In the interest of full disclosure, I have to tell you that I had some indications that Senator Kerry wanted a Democrat to proceed -- to preside for him here at the CFR. The best we could come up with is a Coolidge Republican. (Laughter.) There aren't many of us left, but that's all right.

I have something else I should disclose. For those of you who have been as unfortunate as I, who write worst-seller books that are judged by most as either unreadable or certainly forgettable, or both, nothing is more surprising when you've done that than to find at least one person who both read and remembers something that you wrote.

And, Senator, you may have forgotten this, but we were having lunch -- I was having lunch at the Four Seasons Grill. The senator walks up to me and he recites an entire paragraph, if you can believe that, from an article I had done on Reaganomics in Atlantic Monthly. And man, I said to myself, this is a real politician, let me tell you! (Laughs; laughter.)

A graduate of Yale University, John Kerry entered the Navy after graduation. The senator, of course, has a most distinguished military career. He received the Purple Heart three times for wounds suffered in action, and was awarded the Bronze Star and the Navy Star for gallantry in action.

For those of you who wish to learn more of the senator's military experience, you may wish to read Douglas Brinkley's article, I think it's this month's Atlantic Monthly, entitled, "Tour of Duty: John Kerry in Vietnam."

Senator, perhaps all of that combat experience was useful preparation for the battles that you are now fighting.

It would be quite remarkable if John Kerry's foreign policy had not been shaped by the experiences that he has lived. He has seen war, he has fought war. And when he came to believe that Vietnam was causing irreparable harm to the people and to the country, he came home and fought to stop the war.

In 1996, John Kerry joined John McCain, as you may recall, to facilitate the normalization of trade and diplomatic relations with Vietnam.

The senator has been a member of the [Senate] Foreign Relations Committee for 19 years. He's also served as the chairman of the Foreign Relations Subcommittee on Terrorism, Narcotics and International Operations. And in 1997, he wrote, The New War, one of the early books to raise consciousness about the threat of global terror. Senator Kerry also serves on the Senate Intelligence Committee. He was elected senator in 1984, again in 1990 and '96, and he was reelected to a fourth term in 2002.

This session will be on the record.

And, Senator, welcome to the Council on Foreign Relations. (Applause.)

SENATOR JOHN KERRY: Thank you. Thank you very much. Pete, thank you very, very much for a generous introduction. Thank you for reminding me of that good lunch that I think you paid for. (Laughter.) And I thank you again for that. Would that I were that good a politician, I'd be doing a little better than I am right now.

But it happened that I had just given a speech and quoted that particular section. So it afforded me the opportunity to look good in your eyes. And thank God, it stays with you. (Laughter.) I appreciate it.

It is wonderful to be here at the Council, a forum for thinking about our place in the world and our country. And I'm really pleased to be able to be here as a member and to be able to share some thoughts with all of you today. And I'm grateful to see great friends here, like Ambassador Robin Duke and Congressman Greg Meeks. Thank you for taking time to join us today.

And I want to introduce to you, all of you, a very special person in my life. She hails from Mozambique, lived most of her early life there and in being educated abroad until she came here to work at the United Nations, when she was about 24 years old. She is a naturalized American and approaches America and our politics with all of the passion of somebody who has come to exercise the vote and citizenship aware of what the alternatives are. And I would like you all to join me in saying hello to a remarkable woman, Teresa Heinz Kerry. (Applause.) Thank you.

And my stepson Christopher and my sister Peggy are here. And Peggy's been working in New York and is at the United Nations now, working in the mission, where she works with nongovernmental organizations.

Abraham Lincoln saw and spoke of America as "the last best hope of earth." That vision did not encompass a reach for global empire, and it did not rest on an assumption that might alone could set the world right. That vision was founded on the values and the power of an idea, not primarily on wealth or weapons.

Strength of arms will always be needed; we have learned that through the ages. But the use of American power has always been guided by values and principles, not by might alone.

Today we have an administration that has turned its back on those values and principles. We have a president who has developed and exalted a strategy of war -- unilateral, preemptive and, in my view, profoundly threatening to America's place in the world and to the safety and prosperity of our own society.

Simply put, the Bush administration has pursued the most arrogant, inept, reckless and ideological foreign policy in modern history. In the wake of the September 11th terrorist attacks, the world rallied to the common cause of fighting terrorism. But President Bush has squandered that historic moment. The coalition is now in tatters, and the global war on terrorism has actually been set back. The president had the opportunity to unite the international community and hold Saddam Hussein accountable and, in doing so, to perhaps have avoided war altogether. But he refused to take the time or to expend the true effort of diplomacy. He went to war in a rush, and he rushed into war almost alone. Now the United Nations is divided, years of work is torn apart, and we are fighting an increasingly deadly guerrilla war in Iraq almost single-handedly. We have lost the goodwill of the world, and over-extended our troops, and endangered rather than enhanced our own security.

I believed a year ago and I believe now that we had to hold Saddam Hussein accountable and that we, the United States, needed to lead in that effort. But this administration did it in the worst possible way: without the United Nations, without our allies, without a legitimate plan to win the peace.

So we are left asking: How is it possible to liberate a country, depose a ruthless dictator who at least in the past had weapons of mass destruction, and convert a preordained success into a diplomatic fiasco? How is it possible to do what the Bush administration has done in Iraq: win a great military victory yet make America weaker?

This is the consequence of a policy that regards legitimacy as largely a product of force, and victory as primarily a triumph of arms. But as we discovered in Vietnam, success on the battlefield, or even in a series of battles, can often be the beginning and not the end of a conflict. The Bush administration is so enthralled by the idea of preemption and American military might that it even offered a United Nations resolution calling the United States an "occupying power" in Iraq. No wonder that is what we are viewed as today.

By so quickly and cavalierly dismissing the concerns of the international community in its lead-up to the war in Iraq, the administration compromised American credibility and leadership, and made our job in Iraq that much harder, and weakened the war on terror itself. What nation, be it Germany, Russia, France or even Mexico, would quickly cooperate after having been publicly castigated and even ridiculed for disagreeing over Iraq?

President Bush says that the cooperation of other nations, particularly our allies, is critical to the war on terror. And he's right. And everyone in this room knows he's right. Yet this administration consistently runs roughshod over the interests of those nations on a broad range or issues -- from climate change, climate control, to the International Court of Justice, to the role of the United Nations, to trade, and, of course, to the rebuilding Iraq itself. And by acting without international sanction in Iraq, the administration has, in effect, invited other nations to invoke the same precedent in the future, to attack their adversaries or even to develop nuclear, biological or chemical weapons just to deter such an attack.

Intoxicated with the preeminence of American power, the administration has abandoned the fundamental tenets that have guided our foreign policy for more than half a century: belief in collective security and alliances, respect for international institutions and international law, multilateral engagement, and the use of force not as a first option but truly as a last resort.

Triumphalism may make the arm-chair warriors in the seats of power feel good, but it does not serve America or the world's interests. A foreign policy of triumphalism denies the true victories that we need; and even more, it invites a new and wider, more fundamental kind of conflict, and even war. It diminishes Islamic moderates and it fuels the fire of jihadists, enabling them to attract more recruits to their cause. The battle against terrorism is not and must not be a modern crusade against Islam. But unless we as a nation change course, we still could incite and invite a clash of civilizations, with catastrophic consequences for the future.

Those of us who seek the Democratic presidential nomination owe the American people more than just anger, more than just criticisms of the Bush policy, or even piecemeal solutions. We need to convince America that we Democrats are responsible stewards of our national security and of America's role in the world, and that we can follow in the great tradition of Roosevelt, Truman and Kennedy.

So I have come to the Council on Foreign Relations today to discuss what I would do as president to change a foreign policy that is radically wrong, and to renew an American role of leadership in the 21st century that is true to both our interests and our ideals.

The election of 2004 is very different from others of recent times, especially those since the fall of the Berlin Wall. No issue now is more central and fundamental than national security. And in a sense, all the great issues of our time are increasingly seamless. The effort to succeed at home requires us to succeed abroad. And if our foreign policy fails, our economic policy ultimately will falter as confidence is shaken by global instability, or contracts and commerce are lost by global hostility.

As president, I will chart a new course that is rooted in our enduring values. I will replace the Bush years of isolation with a new era of alliances, because while the Cold War has ended, our need for allies to confront and overcome a different array of dangers is, in fact, as great or greater than at any time in the past. As president, I will not cede our security to any nation or to any institution, and adversaries will have no doubt of my resolve to use force if necessary. But I will always understand that even the only superpower on earth cannot succeed without cooperation and compromise with our friends and allies.

Instead of demeaning diplomacy, I will restore diplomacy as a tool of the strong, and enlist expert and thoughtful Americans of both parties as envoys to carry a new American message around the world. I believe there's an unparalleled opportunity to draw on the experience of statesmen of both parties who can help us to advance the ball. And it has always been stunning to me that so many presidents always want to reinvent the wheel and turn their back on those who've been there before.

I will carry that message to the world myself. And in the first hundred days in office, I will go to the United Nations -- I will go in the first weeks -- and I will travel to our traditional allies to affirm that the United States of America has rejoined the community of nations. I will make it clear that when the secretary of State speaks, he or she speaks for America, and not for a losing cause of internationalism inside an administration obsessed by its own hubris and swagger.

Nowhere is the need for the United States to reengage the world community and renew alliances more critical than Iraq. The American people demand and they deserve a policy that provides greater protection to our troops and greater prospects of success for all of us. Ironically, the Bush administration's actions have pushed the United Nations and our allies away from joining us in this endeavor even though they have an enormous stake in its outcome, a stake which this administration has never sufficiently put to the world.

A powerful case can be made that the international community has a common interest in assuring that Iraq does not become a permanent quagmire, or a rogue state reborn, with Saddam Hussein or his successor basking in his palace, thumbing his nose at the world and sponsoring a new haven for terrorists bent on revenge for what took place. The administration, bent on its own go-it-alone approach, has done little to make that case or to give the United Nations and our allies the necessary incentives and capacity, within the frameworks of their own countries and their own politics and their own history, to be able to join in this effort. True, we have already achieved the U.N. authority for our military presence, but everybody knows that was given reluctantly and at arm's length. What we need is a real, broader on-the-ground coalition, and that can only be achieved with a UN role of either overall responsibility, or at the very least, oversight. Our best option for success -- and I underscore "best option" -- and that's the duty of a president, to find the best option and to work for the best option and to seek it, particularly when the lives of young Americans are at stake. Our best option for success is to go back to the United Nations and leave no doubt with the world that we are prepared to put in charge of the reconstruction and governance- building processes that institution. I believe the prospects for success on the ground will be far greater if Ambassador Bremer and the Coalition Provisional Authority are replaced by a U.N. Special Representative for Iraq -- mindful also of the U.S. security role in the context of the current resolution.

I understand that the United Nations is obviously reluctant to return to Iraq, and for good reasons. But I believe deeply that if the U.N. role is absolutely clear and substantively real, the secretary-general and the members of the Security Council will support this course of action, as they indicated in the walk-up to the war they might have or would have, under the proper circumstances of the exhaustion of remedies available to them at that time.

But one thing is beyond doubt: We will continue to have difficulty persuading other countries, particularly those with meaningful military capabilities, to contribute troops and funds for reconstruction until and unless we vest real responsibility in the hands of the United Nations and the international community.

I have said before -- and I repeat today -- that the Bush administration should swallow its pride and reverse course. But the evidence is obviously strong that it lacks the wisdom or will to do so.

In fact, I fear that in the run-up to the 2004 election, the administration is considering what is tantamount to a cut-and-run strategy. Their sudden embrace of accelerated Iraqification and American troop withdrawal dates, without adequate stability, is an invitation to failure. The hard work of rebuilding Iraq must not be dictated by the schedule of the next American election.

I have called for the administration to transfer sovereignty, and they must transfer it to the Iraqi people as quickly as circumstances permit. But it would be a disaster and a disgraceful betrayal of principle to speed up the process simply to lay the groundwork for a politically expedient withdrawal of American troops. That could risk the hijacking of Iraq by terrorist groups and former Ba'athists. Security and political stability cannot be divorced. Security must come first, and that is why it is so imperative to succeed in building a genuine coalition on the ground in Iraq.

An international effort in Iraq is indispensable, but it is only the start of the new era of alliances in which the United States must lead and re-engage the world.

The war on terrorism, as you have heard before -- unfortunately, it is too much in words and not in actions -- is not just an American cause; it is a global conflict against a hidden and deadly enemy with many faces in many places. No matter how much power we have, we cannot prevail single-handedly. We have to work with the international community to define a global strategy that is inclusive, not exclusive, collective and not imperial.

As president, I will work aggressively to rebuild the relationships frayed and shredded by the Bush administration, particularly with our NATO allies. I will immediately convene a summit with European and world leaders to discuss a common anti- terrorism agenda, including a collective security framework and a long-term strategy to build bridges to the Islamic world.

I will treat the United Nations as a full partner -- not as an obstruction to get by -- not only in the war on terror, but in combating other common enemies, like AIDS and global poverty. We must seek not only to renew the mandate of the U.N., but to reform its operations and revitalize its capacity. And if I am president, the United Nations will be seen as the asset that it is, not a liability to a safer America.

Nowhere is the need for collective endeavor greater than in Afghanistan. We must end the Bush administration's delay in expanding NATO forces and deploying them outside of Kabul. We must accelerate the training for the Afghan army and police. The disarmament of the warlord militias and their reintegration into society must be transformed from a pilot program into a mainstream strategy. Either the warlords must be drawn into a closer relationship with the central government, or they need to be isolated.

The Bush administration has ignored the drug trade in Afghanistan, which has now become again a multi-billion dollar slush fund for corruption and instability. As president, I will reverse the explosion in the growth of opium by doubling our counter-narcotics assistance to the Karzai government and by reinvigorating the U.N. regional drug-control program.

Iran also presents an obvious and especially difficult challenge. Our relations there are burdened by a generation of distrust, by the threat of nuclear proliferation and by reports of al Qaeda forces in that country, including the leadership responsible for the May 13th bombings in Saudi Arabia.

But the Bush administration stubbornly refuses to conduct a realistic, non-confrontational policy with Iran, even where it may be possible, as we witnessed most recently in the British-French-German initiative.

As president, I will be prepared early on to explore areas of mutual interest with Iran, just as I was prepared to normalize relations with Vietnam a decade ago. Iran has long expressed an interest in cooperating against the Afghan drug trade. That is one starting point. And just as we have asked that Iran turn over al Qaeda members who are there, the Iranians have looked to us for help in dealing with Iraq-based terrorists who threaten them. It is incomprehensible and unacceptable that this administration refuses to broker an arrangement with Iran for a mutual crackdown on both terrorist groups.

Beyond Iraq and Afghanistan and the surrounding states, recent attacks, from Saudi Arabia and Indonesia to Kenya, Morocco and Turkey, point to a widespread and widening network of terrorists targeting this country and our friends. This calls for an international response to deny the terrorists sanctuary, freedom of movement, and financial resources. Failed and failing states like Somalia, or countries with large areas of limited government control like the Philippines, need international help -- not just ours, but international help, to close down terrorist havens. And we need leadership that brings people together, not pushes them apart, in the effort to face the realities of this global challenge.

We need a similar collective action to end terrorist funding. I wrote the international anti-money laundering legislation that is now the law of the land. That legislation permits the executive branch to impose financial sanctions against nations or banks that fail to cooperate in the war against money laundering. These sanctions are among our most potent tools in changing the environment which surrounds terrorism and which sustains it. How has the Bush administration used these laws? By going after Nauru.

As president, I will do more than target a strip of sand in the Pacific. I have focused on this issue since I first led our efforts to expose and shut down BCCI. And in my first 100 days, I will launch a "name and shame" campaign against individuals, banks and foreign governments that are financing terror in the world. And those who fail to respond will be shut out of American financial markets.

One country that requires a great deal of scrutiny is Saudi Arabia. Saudi Arabia's role in the financing of terror was highlighted in a report published by this Council itself. And that report, just to remind you, concluded: "For years individuals and charities based in Saudi Arabia have been the most important source of funds for al Qaeda. And for years, Saudi officials have turned a blind eye to this problem."

Perhaps even more disturbing is the allegations that al Qaeda continued to receive money from inside Saudi Arabia long after the September 11th attacks. According to the Council's report, "Some, whose donations go to al Qaeda, know full well the terrorist purposes to which their money will be put."

The Saudi government now claims to be cracking down on terrorist financing, but, frankly, their efforts and actions have not matched their words. The United States must do everything possible to ensure that Saudi reforms are real and not just window-dressing, and there needs to be real accountability.

I have specific concerns. Saudi Arabia has long been an exporter -- a supporter of Islamic extremism both here and elsewhere. Saudi- funded hate speech can be found in schools, mosques and other institutions across the world. Instead of -- they are currently fostering hatred of Jews, Christians, Americans and the West. This kind of officially- sanctioned bigotry breeds terrorism, particularly in countries that fail to address the needs and concerns of their own populations, where it is easy to find an excuse as an outlet. Spokesmen for the Saudis now say that textbooks are being rewritten to remove "possibly offensive" language and that Islamic clerics are being told to tone down their rhetoric. But we need more than promises. We need to see the new textbooks. And we need to hear what the government-financed clerics are preaching.

Saudi officials and spokesmen have said repeatedly that the Saudi government is opposed to every form of terrorism; yet the Saudi regime openly and enthusiastically supports Palestinian terrorist groups, such as Hamas. The Saudis cannot pick and choose among terrorist groups, approving some while claiming to oppose others.

Beyond all this, one purveyor of Saudi hate speech is a senior member of the ruling family, who serves as the top law enforcement official in the kingdom. I'm referring to Prince Nayef, the Saudi interior minister. More than a year after the 9/11 attacks, Prince Nayef told an Arab media outlet that he thought the Jews were responsible for the attacks on the World Trade Center and the Pentagon; and that is the word that went out to the population. How can we ever begin to regard Saudi Arabia as a reliable ally in the search for peace when its own top law-enforcement officer, supposedly responsible for tracking down terrorists, is a man who promotes wild anti-Semitic conspiracy theories to explain away the 9/11 attacks?

The truth is that we have deep and, for the moment, inescapable ties -- corporate and energy dependence -- that complicate our relationship with Saudi Arabia significantly. And that is one of the reasons why it is so compelling as a matter of national security for the United States to adopt a different energy policy and move towards true energy independence. In addition, we need to seek to create a real partnership with the Saudis, a genuine partnership against terror, because that is also in the interests of the Saudis.

As most of you know, perhaps the greatest need for a new era of alliances comes from the gravest threats that the terrorists or unstable states can pose if any of them ever acquire weapons of mass destruction. David Hamburg is here, and I know that he has spent a lifetime focusing on this, and the energies of Sam Nunn and Dick Lugar and others have been well put there, but never sufficiently backed up, never sufficiently embraced as they ought to be by the leader of the free world and by the global community. I will give this challenge the focus it demands. As president, I will elevate non-proliferation to the top of the global agenda and create a new framework with tough, accountable and enforceable standards.

On this issue, too, the administration's unilateralism is profoundly dangerous. Today George Bush is poised to set off a new nuclear arms race by building bunker-busting tactical nuclear weapons, smaller and -- some, incredibly, believe -- more usable nuclear bombs. Well, I don't believe our world or our country will be safer with more-usable nuclear weapons. And as president, I will engage Iran and I will renew bilateral negotiations immediately with North Korea, and I will seek a new international protocol to track and account for existing nuclear weapons and to deter the development of chemical and biological arsenals in the future.

All this and more -- including economic and social progress in the poorest countries, so we can drain the swamp where terrorists breed --cannot be achieved if the United States goes it alone, alienates the world, and simply seeks to impose its will. The new era of alliances that I propose will take different forms in different parts of the world to deal with different and urgent challenges. But the overriding imperative is the same: to replace unilateral action with collective security of a genuine nature.

So far, the failure to do so means that we are less safe today than we were three years ago.

And just as America cannot go it alone, we cannot neglect our indispensable role in the search for peace in the most volatile region of the world. President Bush pays lip service to the idea that Mideast peace is critical to the effort to combat terrorism, but his administration has lurched from episodic involvement to recurrent disengagement, jeopardizing, in my judgment, and in the judgment of many, the security of Israel, encouraging Palestinian extremists, and undermining our own long-term national interests and the efforts of the war on terror in the long run.

Leaders of good will on both sides--private citizens as well as elected officials--have worked hard in these last months to advance the peace process, with some of them offering their own vision of a final settlement. They understand, as President Clinton did, that it may be easier to break the stalemate and end the violence fostered by extremists if the end game is the focus, not the steps leading up to it.

In the first days of a Kerry administration, I will appoint a presidential ambassador to the peace process who will report directly to me and the secretary of State, and who will work day to day to move that process forward. There are a number of uniquely qualified Americans among whom I would consider appointing, including President Carter, former Secretary of State James Baker or, as I suggested almost two years ago, President Clinton. And I might add, I have had conversations with both President Clinton and President Carter about their willingness to do this, and I think they would welcome it and embrace it as a means of moving forward.

Over the longer term, to prevail in the war on terror, we must build new bridges to the Islamic world. In recent years, our capacity to communicate and to persuade has constricted. Think about that. It has constricted. Even as we have seen the Cold War end and half the world that was closed to us open up, our efforts to reach out and be involved have in fact been diminished, rather than grown.

Our diplomats have been forced to withdraw behind concrete barriers in the face of increased terrorist threats. Our annual budget for international affairs, what we spend on the war of ideas, is a fraction of what we spend to prepare for the war on the battlefield. Yet as we have learned through painful experience, we cannot afford to win one war and lose the other.

As president, I will fight for funding to expand our diplomatic presence, and I will direct American representatives overseas to reach out to populations, not just to governments, to religious and cultural leaders, and to a new generation growing up in this age of mass communications. We invented it, and we should be using it to greater effect.

And this kind of public diplomacy cannot be an afterthought; it has to be at the core of our efforts. We must speak and we must listen.

I will also appoint a presidential envoy for the Islamic world who will seek to strengthen moderate Islam and find new ways to isolate the terrorists, and who will make the case for progress, mutual respect, and yes, for our conviction that Israel and the Arab world can and should live together in a secure and lasting peace.

President Bush has spoken of the transformation of the Middle East, but I'm convinced that the transformation must be rooted in the aspirations of the people who live there, not in Republican political ideology. Our purpose must be to help them to open up their own societies and their own economies. How can this administration preach democracy in the Mideast and then condone, as it has in recent days, the denial of a free press in Iraq?

Finally, we must recognize that America will only be secure if our intelligence is sound. The Bush administration has stonewalled the 9/11 commission and resisted congressional investigation of our intelligence failures. And I will tell you, as a veteran of the Intelligence Committee who used to argue vociferously for more money for human intelligence, compared to our fascination with technological intelligence, we desperately need to grow our capacity across the globe to understand what is happening in countries, with their cultures and their histories and their populations.

The need here is to fix the problem, not define blame, and the speedy completion of this task is critical to prevent and respond to future terrorist attacks.

We must ensure that our intelligence is accurate, not manipulated, and that it flows efficiently between agencies and to our allies abroad, and that the law enforcement community at home also shares it, because even what we do know will hurt if it is not known in the right places. We must end the multiple watch lists and the bureaucratic rivalries that put our national pride ahead of national safety. As president, I will address this danger immediately by asking Congress to pass legislation creating a director of National Intelligence with real control over all national intelligence personnel and budgets. And I will appoint a secretary of Defense and other officials who will operate with this change and who will understand that their job is to protect the country, not their own fiefdom.

I will also complete a comprehensive review of the national intelligence establishment, a review which the Bush administration commissioned in its early days, but which has stalled in the face of entrenched bureaucratic interests.

So today I have set forth both principles and specific points of a foreign policy that can make America again a great leader for freedom, not a lonely great power that for all our might grows weaker in the world. Our future will be imperiled, not improved, if we betray our own principles; if we take the path of arrogance, if we blunder down the false road of empire. Our greatest asset is that we need not be alone, that we have friends across the globe who share our cause of freedom and progress.

I know that the Bush apologists will say to this that it is unpatriotic to challenge, that it is unpatriotic to question and to criticize and to call for change. And the reason we know it is they've done it and they're doing it. They're already broadcasting television ads which say just that.

But I know from my own service to country that the flag of the United States does not belong to any president or to any political party or to any ideology. I believe it is the essence of patriotism -- and it is the essence of patriotism to hold our country to a higher standard of behavior. And I believe that in a time of fear, in an uncertain world, America's security depends not just on our own strength, but on our ideals and on the will and the wisdom to forge a new era of alliances where this nation truly and proudly is the best hope of earth.

Thank you for the privilege of sharing thoughts with you today. (Applause.) Thank you very much.

PETERSON: Okay, we'll start the questions. If I may have the first one.

Senator Kerry, our much beloved and esteemed president emeritus, Les Gelb, recently proposed, in a New York Times op ed piece, an idea that I, at least, found fresh; the idea of giving the Kurds and the Shi'ites and the Sunnis some substantial autonomy, or at least power, not necessarily separate states, but some kind of regional arrangement still within the state of Iraq.

Senator, have you had an opportunity to reflect on Mr. Gelb's idea?

KERRY: Pete, thank you for the question. I actually talked to Les Gelb just the other day, and I'd hoped that he might be here, but I know he's put a sort of moratorium on his own presence here for a period of time. And, obviously, all of us are thrilled that he is doing better.

I think it's a fascinating idea which offers possibilities within the context of whatever it is that ultimately the Iraqis are going to decide for themselves. The key, here, is that it's the Iraqis who must make the decision. And what we need to do is rapidly create a climate within which a provisional government has the capacity to be able to bring people together in order to look at those kinds of options. That's one of them.

But unless you have a sufficient capacity for security, and unless there is a non-American-selected entity, it is going to be extraordinarily hard to give legitimacy to almost anything that follows. So, the precursor to that, which is a very legitimate concept -- sort of a federalism, a respect for the interests of each of those groups, which obviously have long histories of hating each other -- and the dominant Shi'a will have an extraordinary time, sort of swallowing the notion that their majority is not somehow going to be represented with respect to a whole Iraq, and the Sunni, clearly, are going to have a hard time accepting that, given the past.

So, I think it's a very creative idea for how we might be able to find a solution, but the key is to create the provisional capacity to get there.

PETERSON: Frankly, Senator, I've been rather relieved that Gelb hasn't been around here, -- (laughter) -- because I'm his favorite roastee, you see?

Yes, please.

KERRY: Well, I was going to tell you what he really said about you -- no, I'm -- (laughter).

AUDIENCE: I'm Lucy Komisar, I'm a journalist. In your BCCI hearings and your book, you deal with the offshore banking and corporate secrecy system. Can you tell us what you would do about the massive tax evasion by many corporations and very wealthy people who use tax havens to cheat our country of billions of dollars, and as a result, make the middle class pay billions more?

KERRY: Well, it's a terrific question, and the answer is -- and I talk about this everywhere I go around the country, because the sense of unfairness, the feeling of violation by the average American worker today is enormous. And no-one should underestimate the degree to which the American people understand what's happening. Tyco leaves Exeter, New Hampshire -- moves its address, but leaves the workers, the buildings and the products in Exeter, where everything goes on as if before. But by just taking the address to Bermuda, they take $400 million off the tax rolls, leaving everybody else to make up the difference.

In the last fifteen years, we've moved from a nation of $200 billion of offshore assets to $5 trillion of offshore assets. We saw the numbers of offshore entities created by Enron, created by WorldCom, others. And you know, as a former prosecutor, I have strong reactions about what is known in the trade as a "sham transaction." It is clear to most people how to distinguish that.

Now, at the same time, we live in a global society. We live in a world of trade. We obviously are going to have multinational corporations with very legitimate reasons to be offshore and to have assets offshore. But what we need, and what I will do is put a very clear line between what is a sham transaction, a non-economic transaction, and legitimate economic enterprise. We know how to do that; we're just not trying.

In fact, we have encouraged people to take advantage of those offshore --and I remember picking up The Economist magazine -- you can pick one up today, probably, and you'll find in the small-print advertising at the bottom of one of the pages how to avoid taxes. And people will help you set it up. There are enough brass-plate companies down in Georgetown, the Cayman Islands, different places, to make anybody in America sick when they look at their own tax bill. And that's what's happening. I'm going to review the tax code, that's gone from 14 pages at its inception to 17,000 pages today, and we are going to help America have a marketplace that is fair, where we reward work and products and people, not perks and privileges.

PETERSON: David Hamburg, please.

AUDIENCE: David Hamburg, Carnegie Corporation and Cornell Medical College. Senator, that's one of the finest foreign policy speeches I've heard, and I've heard a lot. I particularly value the tremendous emphasis you place on the necessity to rebuild friends and alliances as a practical matter, not an ideological matter. We simply can't do the things we need to do in the world today without a very strong network of friends and alliances. So that's a great theme.

I wanted you to say a little bit more about this very interesting idea of presidential envoys, two if I understood it, one for the Middle East peace process and one for the Islamic world. That's a very intriguing idea.

KERRY: David, thank you for your comments on the speech. Look. Jimmy Carter, President Clinton, President George Herbert Walker Bush, Jim Baker. I think Jim Baker made 14 trips there. I know he wasn't all that popular at the end of a number of them and there were some issues. But Larry Eagleburger, Brent Scowcroft. There's great talent out there with people who have been through this. And it's astonishing to me that we are not picking up somewhere near where we left off at Taba, where most of the difficult issues were resolved, in many ways.

Obviously, there's a new prime minister, there's a new government, the people elected their government and they have to make those decisions, not us, but the United States has always been the leverage, if you will, the broker of goodwill to try to bring the parties together and to engage in what -- remember Henry Kissinger's s