TSR: "All of the cards are in their hand and they're not willing to offer America a scrap even from the table."

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WOLF BLITZER: Also regarding Iraq, the nation the United States is now directly accusing of having the blood of U.S. troops on its hands is suggesting that the Iraq progress report is simply theater. Iran's ambassador to Iraq spoke exclusively with CNN's Michael Ware.


HASSAN KAZEMI QOMI, IRANIAN AMBASSADOR TO IRAQ (THROUGH TRANSLATOR): The report given by the United States administration to the Congress, a part of which you refer to here, lacks truth. The report, in truth, resembles a theatrical scenario more than anything. But the problem of terrorism cannot be solved through continuing the occupation or bringing back to power former killers and murderers, a trend which we are regretfully seeing in the U.S. policy.

And our recommendation to the United States administration, if it wants to solve the problems and serve Iraq, is to end these policies. Instead of arming forces that act outside the law and the government, the U.S. should arm and help the government, the army and police.


BLITZER: Let's go to Baghdad. Michael Ware is standing by.

Some potentially inflammatory words, Michael, from the Iranian ambassador.

But give us a little flavor of what's going on there. You suggested the other day that this war in Iraq seems to be emerging as almost a proxy war involving Iran and the United States.

MICHAEL WARE, CNN CORRESPONDENT: Indeed, and it has been for some time. But now it's reaching fever pitch, Wolf.

And I think if you study the testimony given over the past two days very closely, you'll see that there's certainly a rhetorical shift that's matching the military shift away from Al Qaeda to a certain degree, and focusing on the main long game, which is Iran.

So that's why we sat down with the Iranian ambassador. We're one of the few people from the Western media that he ever talks to.

Let me give you some of the dot points. I mean this is the drama, the great game of Iran versus America in Iraq.

Following the testimony, he returns serve on behalf of Iran. He denies the allegations about arming militias and, indeed, counters that by saying that Iran is in possession of evidence of America arming and supporting anti-government militias fighting against the regime in Tehran. He's talking about Kurdish separatist groups and Baloch separatist groups. He then throws down the gauntlet, says if the Americans have evidence against us, let's hear it through official channels. Give it to the Swiss embassy in Tehran. At the same time, he says we're ready to give you our evidence of you meddling in our affairs. We'll give it to the Swiss.

It's a daring challenge.

He also challenges the cornerstone of U.S. policy -- engaging the Sunni tribes. He calls that bringing back the murderers of the old regime. He also says that this is weakening the Maliki government, which must remain. And he threatens any attempt to undermine the Maliki government -- as we've heard U.S. politicians calling for the prime minister's removal -- he says the cost of that will be high and it will affect U.S. security.

Basically, he says the occupation should be over, the president's policy to bring terrorists in has worked. You're breeding them. It's now a terrorist training camp. Leave this to the region. Let Iraq arm the Iraqis. If you don't, we will. Get out and let the region handle this. This is none of your business.

Wolf, it's quite challenging stuff.

BLITZER: And this ambassador -- the Iranian ambassador has met twice now with the U.S. ambassador, Ryan Crocker.

He's going to be here in THE SITUATION ROOM later this hour. We're going to talk about Iran a little bit.

But give us a sense of his mood.

Is this an ambassador -- a diplomat who seems to be confident, cocky that his side, in effect, is winning or did he seem to be on the defensive?

WARE: Look, to use a boxing analogy, Wolf, in terms of the Iranian ambassador and the regime in Tehran in general, you cannot lay a glove on them. These are very polished, very professional, very experienced individuals backed by a very cohesive military regime. The ambassador is cool as they come. According to American intelligence, he's actually a senior officer in the Quds Force -- the very unit that the Americans claim is arming these militias. He's had previous postings in Afghanistan where he actually helped the Americans. He's also had postings in Lebanon with close ties to Hezbollah.

This is a guy who's not phased. And as far as he and his government is concerned, they don't owe America anything. All of the cards are in their hand and they're not willing to offer America a scrap even from the table. They think there's no interest. They're winning and there's nothing America can do about it -- Wolf.

BLITZER: All right, good work, as usual.

Michael Ware reporting for us from Baghdad. He gets another exclusive today. And please join us tomorrow night for a special expanded two hour SITUATION ROOM as we preview President Bush's address to the nation. Our coverage starts 7:00 p.m. Eastern. The president's address 9:00 p.m. Eastern.

Let's go to Jack Cafferty once again.

He's in New York with The Cafferty File -- Jack.

CAFFERTY: Is Michael Ware any good or what?

BLITZER: He's excellent.

CAFFERTY: Unbelievable. I mean it's unbelievable. I love the last line -- we're winning and there's nothing the United States can do about it.

BLITZER: You notice, Jack, the Iranian ambassador -- the Iranians in general, they never wear bow ties or any kind of ties. Michael Ware never wears a tie either, but for different reasons.

CAFFERTY: I understand. I also enjoyed his boxing analogy.


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When this piece re-ran during TSR's third hour, Jack had more to say...

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WOLF BLITZER: Let's go to Jack Cafferty. He is in New York with "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: He's the only reporter in all of the media, not just at CNN, that gets these kinds of stories. I don't see this kind of stuff anywhere else.

BLITZER: He does a really -- I haven't seen the Iranian ambassador talk to anybody else...


BLITZER: ... any other news organization, forget about print or electronic, but Michael got him.

CAFFERTY: Simply remarkable, it is just great stuff.