Interview by George Stephanopoulos on ABC's "This Week"

SECRETARY POWELL: Good morning, George.

MR. STEPHANOPOULOS: The headline of President Bush's speech was his call for new elections and a new Palestinian leadership, and all week long you and other administration officials have been warning of the consequences if the Palestinians instead choose Arafat or another leader compromised by terror. What exactly are those consequences?

SECRETARY POWELL: The consequences really are a continuation of the terrible situation in which the Palestinians find themselves. Unfortunately, despite our best efforts to work with Chairman Arafat -- and I certainly have invested time in this and put forward the Mitchell plan, the Tenet plan, the Louisville speech that I gave, President Bush calling for a Palestinian state by the name of Palestine for the first time -- all the effort we put into that did not produce results, and we believe the reason for that is we are not getting the right kind of the leadership out of the Palestinian Authority, the Palestinian people.

And so the consequences for the Palestinian people is that their situation will not improve and they will be further from their vision of a Palestinian state. It's important to remember that in the President's speech, in the second part of his speech, which hasn't gotten as much attention as the first part of the speech, he spoke about trying to achieve a final settlement within three years. And he said, "I and my government will work toward that goal." So he laid that vision out there, but it begins --

MR. STEPHANOPOULOS: So the US won't support that process if Arafat is reelected?

SECRETARY POWELL: It's hard to see that Arafat's reelection will bring new leadership. It is the same individual with the same kind of leadership. What we need to see is leadership that is more diffused within the Palestinian people so that it is not just centralized in the president, that we have other individuals come up who can be responsible, who can do something about terrorism and do something about the organizations that encourage this kind of activity within the Palestinian community.

MR. STEPHANOPOULOS: Let's --

SECRETARY POWELL: And if I could just make one more point, George.

MR. STEPHANOPOULOS: Sure.

SECRETARY POWELL: Two months ago, I sat with Chairman Arafat in his headquarters in Ramallah when he was trapped by the Israelis, and I told him, "We'll get out of this in due course. You know, you'll find a way to relieve this siege, but you've got to make a strategic choice and move in a new direction, or it's impossible for us to help you or to help the Palestinian people."

I think other people are now starting to realize that, both in Europe, in the region, and among Palestinian officials. They're beginning to understand that they better take another look at the way in which that movement has been directed in recent years.

MR. STEPHANOPOULOS: You talk about that meeting with Chairman Arafat. Is it at all possible now for Arafat to still make that choice?

SECRETARY POWELL: I don't know. We don't think it's possible because he hasn't demonstrated in the past that he is willing to make that choice. He is a leader. People look to him as their leader, but he does not use that leadership position. He does not use his moral authority to call for new directions, to tell the people that the direction in which they are going with terror and violence is wrong. And he simply has not been a successful leader.

And as President Bush has said very often, he has been a disappointment. And we have worked -- we have worked very hard to try to see if we can make something of it, but it simply hasn't worked. And as recently as two weeks ago when we saw the bombings start up again once the pressure was released, and when we had evidence that there was still complicity with terrorist organizations, it made it absolutely clear that we had to give a sharp message to the world, to the Palestinian people.

Now, the President's message was very sharp and very direct, but others recognize the problem. The Europeans recognize the problem. Prime Minister Berlusconi also called for Mr. Arafat to step aside. Prime Minister Blair certainly indicated that. The G-8 leaders understood this. Arab leaders I think are coming to this conclusion, and some within the Palestinian movement --

MR. STEPHANOPOULOS: Except just this morning, sir, the Egyptian Foreign Minister said that Egypt strongly supports the democratically elected Palestinian leadership and refuses any attempt to outflank it. Egypt supports Arafat.

SECRETARY POWELL: Well, we will have to talk to the Egyptians to see what direction they want to move, because if they just want to continue to support Chairman Arafat in the way in which he has been acting and behaving and the leadership he has given, then there will not be a solution for the Palestinian people. The ones who are the losers in all of this -- not the bureaucratic who won/who lost. The losers in all this are the Palestinian people. There is a state waiting for them if they will push violence aside, if they will condemn terrorism, if they will move in the direction that the President pointed out to them, gave to them in his speech last Monday.

MR. STEPHANOPOULOS: But there is some evidence that the Palestinian people, in the short run at least, are rallying behind Arafat. He was fairly strong to begin with. I want to show a poll by the Palestinian Policy and Research Center from last month. It showed Arafat at 35 percent, his deputy Marwan Barghouti at 19 percent -- he's now in an Israeli jail, and Sheikh Ahmed Yassin of Hamas at 13 percent. All are implicated in terror. Can you name a single Palestinian leader with popular support who is not compromised by terror?

SECRETARY POWELL: Right now, I don't want to start naming names because it's up to the Palestinian people to make their judgment as to who they want to be led by. But if these polls over time turn out to be the case, and these individuals come back in and they have not changed their approach to moving forward, then the Palestinian people will still be denied the opportunity for a better life and a better future and a state of their own.

I hope over the next several months that the Palestinian people examine the situation they are in and recognize that the individuals who have been leading them have not moved them any closer to a possibility of having a state of their own. And when they see how much their position and their situation has deteriorated over the last several years, with opportunities missed, opportunities that were not taken, opportunities at the end of President Clinton's Administration, opportunities that we have presented in the course of the Bush Administration, every one of those opportunities pushed aside on an alter of violence and terrorism that is destroying the dreams of the Palestinian people.

We are prepared to help. Assistant Secretary of State Burns will be going to Europe tomorrow, at the meetings on Tuesday talking to our European allies. We will then begin discussions again with Foreign Minister Maher of Egypt and others, and I will be meeting with Arab foreign ministers as well as European and other leaders to chart a way forward, to find a way forward that will allow the Palestinian people to reform their institutions, and let them make a judgment as to whether they want to keep moving in the direction they've been moving or whether they want to start in a new direction.

MR. STEPHANOPOULOS: Can you imagine a situation where you'll meet with Chairman Arafat?

SECRETARY POWELL: I have no plans to meet with him and I don't want to speculate about the future, but at the moment I can't imagine a situation --

MR. STEPHANOPOULOS: But it's possible that you might?

SECRETARY POWELL: I didn't say that. I said I don't see that right now. I have met with Chairman Arafat on a number of occasions, and I made it clear to him in our last two meetings that a strategic change in direction was necessary. We did not see that strategic change in direction, and so I am trying to find ways to meet with other leaders within the Palestinian Authority and the Palestinian community who are willing to move in a positive direction.

MR. STEPHANOPOULOS: There's also a question about how Israel will deal with Arafat. As you know, on several occasions Prime Minister Sharon has recommended to his security cabinet that they expel Arafat. Does the United States still have a pledge from Israel not to harm or expel Arafat?

SECRETARY POWELL: We have a pledge from Prime Minister Sharon not to harm him.

MR. STEPHANOPOULOS: But not -- you didn't say expel.

SECRETARY POWELL: We never talked to Mr. Sharon about expel. But I don't believe that the Israelis are inclined to do that right now. To expel him and send him out to some European capital seems to me to not be a very wise thing to do at the moment.

MR. STEPHANOPOULOS: But you don't have a pledge?

SECRETARY POWELL: The pledge we have is not to harm him.

MR. STEPHANOPOULOS: The President also made some challenges to Israel in his speech. He said, for example, they should withdraw their troops to the lines of September 2000. Does the President expect that withdrawal to begin now or after the Palestinian reforms?

SECRETARY POWELL: It's the question of simultaneity, and I think we have to take it a step at a time. We're not expecting that to happen right now while Israel is being subjected to a bomb a day, as we saw two weeks ago, which caused them to believe that they had to go back into these areas. But they can't sit in this Palestinian cities and villages forever. It is not a sustainable thing over time.

So what we are hoping to see happen is some more responsible leadership come up within the Palestinian movement that gives the Israeli Government some confidence that, if they start to release their grip, it will not be responded to by just new violence all over again. And ultimately, you get a process started.

There are many ways to go forward. Everybody knows what will be required at the end of the day. The President put in his speech the end of the occupation, the end of settlement activity, accessibility for the Palestinian people to get to jobs, to get to health care, to get to schools. But it all begins with getting the violence and the terror under control. Every plan for the last several years that has been put forward has failed because we have been unable to persuade Palestinian leaders and these organizations within the Palestinian community that violence and terror take them nowhere.

MR. STEPHANOPOULOS: But right now, can the elections, the new elections that you want, take place with Israeli troops in the West Bank?

SECRETARY POWELL: There will have to be some adjustments, and I hope that as we go forward through the summer and into the fall we will find enough relative calm in the situation so that the Palestinians can have access to towns and can have access to each other. You can't reform if everybody is trapped in a hotel and unable to move or trapped in their home and can't get out.

MR. STEPHANOPOULOS: Is the speech the President gave the course you outlined to the President?

SECRETARY POWELL: We all agreed on the speech. All of the President's advisors agreed on that speech. We worked it through very, very carefully. The speech has two parts: the first part describes the failure of the Palestinian leadership; the second part talked about a positive vision for the future, where both sides have to take some actions. The President's advisors worked very carefully on every page, every word, of that speech, and it enjoys our full support.

MR. STEPHANOPOULOS: But there was no mention, for example, in the speech of the peace conference that you were proposing.

SECRETARY POWELL: The simple reason is that the conference that I had proposed was proposed under a different set of circumstances two months or so ago, when we looked like we had some progress moving forward. But since then we saw a rash of additional bombings. The Israelis, who we had persuaded to leave the areas they had occupied and release the pressure on the Muqatta in Ramallah, we ended the siege at the Church of the Nativity, we looked like we had some things that were showing some forward momentum.

And then suddenly we had the bombings start up again and we made the judgment that despite our best efforts to work with Chairman Arafat, it wasn't getting us anywhere. And in light of those circumstances, it wasn't appropriate to talk about a conference in the next few weeks. In due course --

MR. STEPHANOPOULOS: Could it still happen?

SECRETARY POWELL: In due course, as this moves forward, if the parties are going to find a way forward, sooner or later they will have to come together and meet. Now, when that is ready for a meeting, there will be a meeting.

MR. STEPHANOPOULOS: But not this summer?

SECRETARY POWELL: I don't want to give a timeline on it, but the meeting that we were thinking about for this summer does not seem to be timely at the moment.

MR. STEPHANOPOULOS: Finally, sir, on the question of the wider war on terrorism. You saw the FBI issued a new threat yesterday warning of a possible attack here in the United States on or around July 4th. Is that a sign that al-Qaida is gaining strength in organization?

SECRETARY POWELL: I don't know that it's gaining strength in organization. I think it has always presented a threat to us. I don't know that it's any stronger than it had been; I think it's weaker. I mean, as a result of our efforts in Afghanistan, we forced their leadership to disperse, we forced them into hiding. But we have always said that they would be there, and they are going to be there for a long time until we root every single one of them out. And they are located in dozens of countries around the world. So the President --

MR. STEPHANOPOULOS: And there are new reports this morning of perhaps an alliance with Hezbollah.

SECRETARY POWELL: I saw that report, and I don't discount it. I haven't read the details of it, but I don't discount it. They will make friends with anyone they can who is committed to the kind of terrorist activities that they are involved in.

And so, as the President said from the very beginning, this is going to be a long campaign again terror, and we have to be prepared to fight this campaign for as long as it takes with all the resources at our disposal and all the energy we can muster.

MR. STEPHANOPOULOS: Mr. Secretary, thank you very much.

SECRETARY POWELL: Thank you, George.