And I think that players in the region understand the compromises that are going to need to be made. But the politics of it are hard. And the reason it's so important for the United States to be engaged and involved immediately, not waiting until the end of their term, is because working through the politics of this requires a third party that everybody has confidence, wants to see a fair and just outcome.
And I think that an Obama administration, if we do it right, can provide that kind of (INAUDIBLE).
STEPHANOPOULOS: Former Defense Secretary Bill Perry said this week at a conference that you will almost certain face, almost certainly face a conflict, a crisis with Iran in your first year in office.
Based on what you've learned, do you agree with that analysis and are you ready for it?
OBAMA: Well, I think that Iran is going to be one of our biggest challenges. And as I said during the campaign, you know, we have a situation in which not only is Iran exporting terrorism through Hamas, through Hezbollah, but they are pursuing a nuclear weapon that could potentially trigger a nuclear arms race in the Middle East.
STEPHANOPOULOS: And you have to do something about it in your first year.
OBAMA: And we are going to have to take a new approach. And I've outlined my belief that engagement is the place to start. That the international community is going to be taking cues from us in how we want to approach Iran.
And I think that sending a signal that we respect the aspirations of the Iranian people, but that we also have certain expectations in terms of how a international actor behaves, is…
STEPHANOPOULOS: But a new emphasis on respect.
OBAMA: Well, I think a new emphasis on respect and a new emphasis on being willing to talk, but also a clarity about what our bottom lines are. And we are in preparations for that. We anticipate that we're going to have to move swiftly in that area.
STEPHANOPOULOS: Let me ask you about homeland security. You haven't talked too much about it. This week, President Bush's homeland security adviser, Ken Wainstein was talking about the Mumbai attacks.
And he said: "You could envision it happening in any American city, and it's chilling when you think about it." And, you know, you've been getting the president's daily brief every single day, do you agree with that?
OBAMA: I think that homeland security always has to be our number one priority. When I set up the hierarchy of things that I've got to do, my number one priority every single day that I wake up is how do I make sure that the American people are safe. We've got an outstanding person in Janet Napolitano who's going to be heading up our homeland security department. She is already in deep consultation with the other members of my national security team and we are going to have to stay vigilant and that's something that doesn't change from administration to administration. When you see what happened in Mumbai that potentially points to a new strategy, not simply suicide bombings but you have commanders taking over –