Transcript: National Security Adviser Gen. James Jones and Sen. John McCain, R-Ariz.

MCCAIN: I probably would not go that length. We all work in cycles for many years. We have seen parties down and parties up. That's a great thing about American politics. But having said that, do we have to do a better job of getting our message out? Do we have to do a better job recruiting candidates? Do we have to do a better job of outreach? Outreach to many Americans that don't feel that they can be part of our party? Absolutely. Absolutely.

And this conversation that Eric Cantor, which some have criticized and others have begun, I think it's a great thing. Why not have a conversation with the American people. Find out what they want.

STEPHANOPOULOS: Vice President Cheney has been part of that conversation as well and he's been saying that the party should not moderate. Here's what he said this week.


DICK CHENEY, FORMER VICE PRESIDENT: I think it would be a mistake for us to moderate. The idea that we ought to moderate basically means we ought to fundamentally change our philosophy. And I for one am not prepared to do that and I think most of us aren't.


MCCAIN: I think we're kind of in a word game here. I don't want to moderate, either. I think our policies, the principles of our party are as viable today as they have in the past. In all due respect, the previous administration, by letting spending get completely out of control, by betraying some of those principles of our party, cost us a couple of elections.

And maybe I didn't do a good enough job communicating with the American people. But we have to improve our outreach and our communication and that doesn't mean betrayal of principles. I think maybe it means that adjusting to the 21st century in communications, in values, in goals, in all the things the American people want.

STEPHANOPOULOS: But some of your closest associates say it's more than a communications problem.

MCCAIN: It is.

STEPHANOPOULOS: Your former campaign manager Steve Schmidt came out and said unless the party has a more live and let live philosophy on issues like gay rights and gay marriage, your own daughter has taken the same position, you're not going to be able to attract especially the young generation.

MCCAIN: I think we have to be an inclusive party. That does not mean betrayal of fundamental principles. One of the fundamental principles of the Republican Party is to as much as possible, to let people lead their own lives without government interference in their lives. To go as far as their hopes and dreams and aspirations will take them.

We have to understand that there may be a candidate that can win in one part of our country like the South, may not be able to get elected in Pennsylvania. And local needs and local issues are important but fundamental principles can be articulated. I believe America is a right of center nation. I believe the Republican party is a right of center party. We have to get in synch with the American people ...

STEPHANOPOULOS: Does that mean more toleration of those who believe that women should have the right to an abortion? Of those who believe that gays and lesbians should have full civil rights? MCCAIN: It means that we can have people in our party who do not have the same views on specific issues as long as we share common principles.

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