SEAN HANNITY, HOST: With the 2010 elections fast approaching, the chairman of the Republican National Committee is taking matters into his own hands. He's now outlining 12 crucial steps that he thinks can defeat the Obama agenda. And all of them are detailed in his brand-new book, "Right Now: A 12-Step Program for Defeating the Obama Agenda."

And joining me for an exclusive first look at his book is the RNC chairman Michael Steele.

Good to see you. Our chairman in the studio.

MICHAEL STEELE, RNC CHAIRMAN: Good to see you. Happy New Year. Hey, it's great to be back with you, man.

HANNITY: One of the - before we get into this. Republicans have been wrong. Admit mistakes.

STEELE: Yes.

HANNITY: I love that, because that's the first step to getting well.

STEELE: That's the first step to getting well. And it occurred to me that this really is a step-by-step process. It is taking some baby steps initially. But it really starts with taking your head out of your navel and paying ahead and looking to the...

HANNITY: Some people might use another term.

STEELE: There are a couple of other - the reality of it is you've got to start by looking within. And we have to understand that, you know, we did some things when we walked away from the contract with America. We walked away from principle leadership by trying to be Democrat-like, by trying to be something that we're not.

So when you start with principle you realize that the opportunity is there to address these issues that Americans are concerned about. So we wanted to do this in a step-by-step manner.

HANNITY: Well, let's go through some of the steps. The first couple of steps, for example, admit you have a problem. Admit your mistakes.

STEELE: Right. And you've got to start there, because once you know where you're starting from, then the next steps get a little bit easier, when you talk about, OK, what are we talking about here? Our principles against what? Well, this rein of error that the administration is currently...

HANNITY: Before we get to that, what are the mistakes that you think - because I've been very critical of the Republicans for abandoning Reagan conservative principles.

STEELE: Yes, yes.

HANNITY: What do you think the mistakes are?

STEELE: Well, we'll start with - let's start with the 50 percent increase in the size of government. Let's talk about the spending, the bridges to nowhere, the TARP program.

Let's talk about, you know, the walk away from those values that talk about a government that's less in your life and allowing entrepreneurism to flourish, allowing small businesses to do what they do best at creating jobs and opportunities. These are the things that we didn't talk about in '08. This is what the American people were looking for.

HANNITY: I thought Mike Pence had a pretty good line. He said offering, you know, what the Democrats are offering minus 10 percent is a prescription for a permanent Republican minority. And I think in many ways that's true.

STEELE: That is very true. And what we have to understand is for the Republican Party, for conservatives, I mean, we are the conservative party in this country. I said that for my first day in office.

That as the conservative party, this is our moment right now to help America move away from the bad policies that take us into more spending, growth of government, and put us on a track where we trust people more than government.

HANNITY: See, why should people - and I'm asking this, because I know, because I talk to people all day and I read their e-mails all day. Why should people put their faith, hope, trust back in the Republican Party, when you're admitting they made all these mistakes?

STEELE: And that's - look, are you going to trust someone who's not free enough with themselves to admit they have a problem? No. you're going to be suspicious. Because if I don't see you admit your problem, then how can I trust what you say going forward?

HANNITY: All right. So...

STEELE: Once you do that, Sean, once you do that, then it's got to be followed up with concrete action. And that's one of the things that - it's not just in this book right now, drawing out contrasts between Democrats and Republicans. But then saying what it is we should be doing. How do we begin to address those?

HANNITY: Positive messages?

STEELE: Positive messages. Again, looking to the future with the sense of empowering people, not government.

HANNITY: Then how - if the Republican Party, to quote you, is the conservative party, which I think is - is the only formula for success. And I've been saying it for a long time. How do you deal with a Susan Collins? How do you deal with an Olympia Snowe? How do you deal with these left wingers in the party that don't stand on those principals?

STEELE: And that's one - that's one of the dynamics that we're now beginning to discover as a party. That yes, we are diverse. The northeast is different from the south. It's different from the west.

So you look to the leadership in the local communities grooming candidates that stand on these principles that don't have this sense of, "Well, I can pretend to be a conservative back home", Blue Dogs, and then go to Washington and vote Nancy Pelosi's agenda. That is the line that people have now begun to draw in the leadership in this country, which is why I think we're seeing the resurgence in the party.

HANNITY: I mean this. I don't think there is a moderate Democrat. We saw this with the buying in the health care bill.

STEELE: Well, no.

HANNITY: But the question is, is - conservatives like myself that have felt alienated and felt like these principles have been abandoned.

And I want to say this with this caveat, that I think the Republican Party is getting back on track. They are opposed to health care. They did oppose the stimulus. Nobody voted for cap-and-tax.

STEELE: Right.

HANNITY: They're still for a strong national defense.

STEELE: Right.

HANNITY: So there is certainly bold differences. But how do unite the party when you have these different factions? And - because I'm not going to support a Dee Dee Scozzafava.

STEELE: Right.

HANNITY: I'm not going to support an Olympia Snowe. I'm not supporting Susan Collins.

STEELE: But that's - you, where you live. Now, if you live in a community where that - where there are certain aspects of that particular Republican that appeal to you, that's fine.

But the thin that's important to note here, you've got to fall down on those - those core principles, that thread, that common thread that defines us, regardless of the region of the country we're in. I look at it this way. If you've got four people wearing a hat and they wear the hat differently, what's the thing they have in common? That hat, that one thing that they put on. The GOP, everyday.

HANNITY: But there's - but there's a battle, and you know this is going on, because you're the chairman. I'm sure you deal with this a lot more than I do. There are those that are saying that, for the Republican Party to be successful, they've got to, quote, moderate - be more moderate.

STEELE: No, no!

HANNITY: You hear that.

STEELE: That's what has gotten us into trouble, when we walked away from principle. Our platform is one of the best political documents that's been written in the last 25 years, honest engine on that.

It speaks to some core principles, conservative principles on value of family, faith, life, economics. Those principles don't change. You can't - you can't remake that into something else because you want, you know, the liberal media to like you or you want a Bob Beckel, who is a dear friend, to like you. Those principles...

HANNITY: Beckel's coming up. He said he wants to attack you and me in one - in one sentence. He says he's got an opening line that will make my day.

STEELE: Oh, yes, right.

HANNITY: He's like an 11-year-old playing tennis and trying to get into my head before the match starts.

STEELE: But that's how liberals operate. They've got the catchy phrases.

HANNITY: That's how liberals operate. You hear that, Bob?

STEELE: Then you draw down on the policies and you go what is this? When you look at cap-and-trade, when you look at what we're doing on health care, those aren't principled positions. Those are political decisions.

HANNITY: Here's what Sean Hannity wants. I want to - I want the principles that worked for Reagan, the principles that worked for the contract. I want a new Contract with America. And I've been saying this for two years now.

STEELE: Yes.

HANNITY: Will there be a new Contract with America?

STEELE: There will be - you know, been working on this document called first principles. And this book right now talks about how we get to those first principles and defining them.

And I think you're going to see over the course of this year a definitive document that lays out, with clear definition, who we are. I don't think right now, Sean, there's a better moment for conservatives in this country than right now.

And I think that this is an opportunity for us to speak truth to power, to do so in a way in which we're leading and we're not - we're not obstructing. But we're giving - we're giving America the pathway that they need to self-empowerment.

HANNITY: I think this is one of the most important midterm elections that, as I said earlier, in our lifetime. So here's my - I'm going to put you on record...

STEELE: OK.

HANNITY: ... in January, I'm going to play this back to you in November.

STEELE: OK. I'm there.

HANNITY: Predictions for the election?

STEELE: Predictions for the election, I think that overall - and we're beginning now to do the assessments on the various races. But I think overall, given what we know so far and what this administration's proclivities are, we're going to see, I think, nice pick-ups in the House. I think we're going to see nice...

HANNITY: More specific.

STEELE: Well, I can't give a number right yet. Because like I said, we're just now beginning to look at the races. And we have races where it hasn't been clear...

HANNITY: Do you think you can take over the House? Do you think Republicans...

STEELE: Not this year. And Sean, I would say honestly.

HANNITY: You don't think so?

STEELE: Well, I don't know yet, because all the candidates we still have vacancies that need to get filled. But then the question we need to ask ourselves is, if we do that, are we ready?

HANNITY: Are you?

STEELE: Are we...

HANNITY: Answer your own question. Are we - do you think they're ready?

STEELE: I don't know. And that's what I'm assessing and evaluating right now. Those candidates that are looking to run have to be - have to be anchored in these principles. They have to be - they have to understand...

HANNITY: I'm agreeing with what you're saying. I think...

STEELE: They have to understand these steps, because if they don't, then they'll get to Washington, and they'll start drinking that Potomac River water. And they'll get drunk with power and...

HANNITY: And Beckel will have to pick them up. I mean, it's...

STEELE: Exactly.

HANNITY: All right, Mr. Chairman, good to see you.

STEELE: Thank you.

HANNITY: Beckel, by the way, is watching. He says he's coming at me right out of the box. So we'll find out...

STEELE: We want to see what this is all about.