LDT: "If you continue to undermine the Maliki government there is going to be severe costs and it will effect U.S. security."


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KITTY PILGRIM: Well, Iran's ambassador to Iraq today said U.S. assertions that Tehran is arming Shiite terrorists are -- quote -- "irresponsible and unreal" -- unquote.

The ambassador described the Petraeus-Crocker testimony to Congress as theatrical. And he made his remarks in an exclusive interview with CNN's Michael Ware in Baghdad.

Michael Ware joins us now live from Baghdad.

And, Michael, what exactly did the ambassador say about Iran's links to the Shiite groups in Iraq?

MICHAEL WARE, CNN CORRESPONDENT: Well, Kitty, obviously, he denied those links.

He says, yes, we had connections with every group in this country. But we're not supplying them weapons.

Indeed, he threw down the gauntlet to the United States. He said, if we're supplying weapons to these Shia militias, prove it. He said, we have received no evidence from America through official channels, and invited Washington to provide evidence through the Swiss Embassy in Tehran.

He then turned the tables and said, well, as a matter of fact, Iran has evidence of America arming and supporting militias opposed to the government in Iran itself, speaking of Kurdish and Baloch separatist groups.

He said, we're ready to give that evidence to the Swiss Embassy. Are you ready to give us your evidence? He is saying there is none that exists. He said, the occupation has to end. President Bush's strategy to bring the terrorists in here and kill them is working. He said it's turned into a terrorist safe haven. And he said, don't touch the Maliki government. Iran is under an obligation to protect it, and we will.

He also said, American must abandon the policy of bringing back the murderers of the Baath Party. He is referring to the successful Anbar tribes program. And he finished off by saying, we don't want conflict, but we're not afraid of it -- Kitty.

PILGRIM: Yes, that's a disturbing comment. What did he say specifically about the Petraeus-Crocker testimony on Capitol Hill, Michael?

WARE: Well, he said that that was, as you said, theatrics. He said it was -- basically, it was lacking substance and it was a matter of wild accusations, in his view, despite whatever evidence has been mounted.

And he says it was designed purely for a domestic audience. He said it was serving particular interests. And he found it easy just to bat the allegations away, defying America to prove that he is wrong. And, Kitty, what this really does, it gives America a taste of what it's really in for here in Iraq. General Petraeus flagged Iran. Iran really is the name of the game now. They're certainly the long game. You're always going to have an al Qaeda problem, but shifting the Sunni Baathist, that has helped that.

Iran still owns this country. And Iran is saying, we have got everything in our favor. We don't owe you a thing.

And they're not offering America any assistance whatever. Indeed, they are promising that , we will step in and arm and equip the Shia-dominated Iraqi government, if you don't. Just get out of the region, let us fix it, is what he says.

PILGRIM: Michael, there are reports that I wanted to ask you about, that U.S. officials are stepping up their efforts to form a pact with some of the Iraqi Shiite militia groups, specifically Muqtada al-Sadr's group, which holds a very dominant position in Baghdad and has links to Iran.

Are you hearing these reports and what do you make of these stories?

WARE: Well, that's been going on for well over a year that I personally know of. And I actually have reason to believe it's been going on, under various American leadership here, from Ambassador Negroponte to Ambassador Khalilzad, and now under Ambassador Crocker.

The U.S. administration, whether it admitted it at the time or not, has been reaching out. And, in fact, the American Embassy has essentially set up a Muqtada desk quite some time ago. Its sole objective is to reach out to Muqtada, find out what it is that he wants and see if America can outbid Iran and win him over.

At the same time, it's looking for ways to put pressure on him. But they have been dealing with Muqtada's organization for a long time, like they had been with the Sunni insurgents, when they said they weren't, and a whole host of other people -- Kitty.

PILGRIM: you know, you bring up the reaching out to the Sunnis in Anbar Province. It is a sort of parallel effort, you could say.

But the short-term is for stability but long term, does this not open the door for Iranian influence?

WARE: Oh, absolutely. It opens the door and, yet, this is America's hedge against it.

Now, engaging the Sunni insurgents, what we're talking about here are the men who commanded Saddam's army and intelligence apparatus. Now, four years ago, they offered America a deal after the invasion. America rejected that. It took four years of war before both sides could agree, and we're now seeing the benefits of that.

These guys never liked al Qaeda. They offered to kill al Qaeda in '03. America said no. Now they say yes. And it's proving very effective. It serves American interests in a number of arenas, not just al Qaeda. It's also a stick with which to beat the Iraqi government. They're terrified of this program. So, it's trying to prod them into real action.

And these guys are rabidly anti-Iranian. They fought them in the '80s when America was their ally. They are willing to do it again. And America is using these Baathist insurgents as a hedge against Iranian influence. That's why the Iranian ambassador pointed to it so strongly and said stop doing this or there is going to be big trouble.

And he says, and if you continue to undermine the Maliki government -- and he cited this as an example -- there is going to be severe costs and it will effect U.S. security, he said -- Kitty.

PILGRIM: Thanks very much, Michael Ware. Thanks, Michael.