LARRY KING, HOST: Tonight, Rudy Giuliani. He saw New York through a terror attack that brought America's biggest city to its knees. How does he think President Obama is handling the crisis that confronts America today? He is here to tell us.

And then, the Roman Polanski rape case back before a judge today. The victim wants the charges against him dismissed. We have all the latest and all next on LARRY KING LIVE.

We begin with the former mayor of New York, Rudy Giuliani. He sought the Republican nomination for the presidency in 2008. Lots to talk about. What about, you are not going to run for governor, you are going to run for Senate? What is next for you?

RUDY GIULIANI, FORMER MAYOR, NEW YORK: What is next for me is continuing to build my two businesses, Giuliani Partners and Bracewell & Giuliani. I'm involved with a security consulting company. We're doing security, various parts of the world. And a worldwide law firm, Bracewell & Giuliani. I'm very busy, having a great time and not the time to leave, too many things going on.

KING: Might you consider it sometime down the road?

GIULIANI: Yeah, sure, sure. You never know. Life is -- what I found is life changes and politics changes. And who knows what is going on happen. But right now I am involved in so many things. We are getting involved in doing security for the Olympics and the World Cup in Brazil, a bunch of other projects like that in other parts of the world. I'm involved with my firm in a lot of cases. I'm very active and I'm enjoying myself which is the most important thing in life, right?

KING: You're not kidding. All right, let's get to things current. The Detroit terror suspect indicted today. Liz Cheney and some other Republicans say he should be classifieds an enemy combatant before a military tribunal. Now you were a prosecutor. What do you think of trying him in the criminal courts?

GIULIANI: Well, I don't think it's really a question of trying him so much as the opportunity that was lost. I think the president made a very big mistake in not making him an enemy combatant because the minute you make him a criminal justice defendant, you cut off the ability to really question him. In fact, as far as I know, I don't know the inside story here, he went talking until he went out and got him a lawyer, cut him off from talking.

You want to talk to this guy for about a month. You want to keep him an enemy combatant for about a month or two to get all the intelligence he is willing to give you because that intelligence could be about other possible attacks on the United States.

And I really believe the president and Attorney General Holder really should rethink this. They should really rethink this rigid commitment to the criminal justice system. After all, this guy came from outside the country. What he was planning was an attack on America. This is a war-like act. He should not be treated like a domestic criminal.

KING: Can you later treat someone as a military combatant and then later try them criminally?

GIULIANI: You can do anything you want. The Justice Department could move him around in all different ways. The reality is, in this particular case, he should have been treated as an enemy combatant.

After all, the president and the attorney general have authorized military tribunals. Now if you are going to have military tribunals and you're going to try some people in a military tribunal, somebody who comes to the United States with a bomb to blow up an airplane in one of our cities, should be treated as a wartime criminal, not like a domestic criminal. That may be an academic dispute for some people. But here is the difference. If you treat him as a criminal justice defendant, you cannot question him the same way as you can question him if he's an enemy combatant. And we want to know, I'd like to know everything he knows. I'd like us to have the benefit. And he sounds like somebody that you could crack pretty easily. It sounded like he wanted to talk and we cut it off.

KING: What did you make of the president's strong statement yesterday of security measures and the like and tightening them up?

GIULIANI: I think the president has to make a major correction in the way he is dealing with terrorism because I think he has mishandled the situation. First of all, it was 10 days too late. This is something you react to immediately, not 10 days later after your vacation. The president of the United States, when there is a potential massive attack on this country, which is what this guy was going to do, should have been on top of this immediately, not 10 days later, 11 days later, 12 days later.

We should have had our response ready. After all, this is not an unexpected act. We are in the age of terrorism. We don't need 10 days to respond or figure out our response. All that does, I believe, is convince our enemies that we are not ready, that we are pondering too much and thinking too much. So, you know, there is -- you want to take some time. But this has been an extraordinarily long time given the magnitude of this kind of attack.

KING: President Bush took six days once in a similar incident.

GIULIANI: Well, six days is less than 10. And the reality is that President Bush was criticized for taking -- what was it, like 20 or 30 minutes in delaying his response to September 11th. And I believe that six days was before the September 11th attack.

I think one of the things that I note about the administration, that I believe there's time for them to change this. I mean, President Kennedy famously by his own admission mishandled the Bay of Pigs early on in his presidency and learned from it.

I hope the president has the whatever leadership qualities or whatever to learn from the mistakes that he has made in the way that he has handled this. He delayed too long in responding to it. His response has been too tentative.

The reality is the very first descriptions by the administration were entirely inaccurate, including the suggestion that everything worked which doesn't give people a lot of confidence. Maybe from now on, there will be a quicker response and a more accurate one.

KING: Bush waited six days on the shoe bomber.

GIULIANI: That's correct.

KING: Do you think heads should roll here Rudy or is it too soon?

GIULIANI: That is up for the president to decide. I don't know enough of the internal situation here to tell you that people deliberately missed things or they mishandled things, and it looks like they did. But I can't tell you which ones. I think the president has got to take the responsibility for his own response, which has been very much delayed and extremely tentative. There is enough time for anybody in Yemen who might think that we are going to respond to it to go somewhere else by now. It's been a long time to deal with it.

KING: All right how about since 9/11, we have been talking about both administrations connecting the dots. We still haven't really put it all together in all honest, right, Rudy?

GIULIANI: Well we haven't, no. It's clear from both the Ft. Hood attack and this attack, there is something seriously wrong here. And here I would say, this is not in any way a criticism of just this administration. This is an enormously complex thing to do. And we haven't gotten it right yet. We haven't given it enough priority to the correct situation. Now, it may seem easier in retrospect to kick them out. It's easier once somebody is caught with one of these bombs or somebody runs into Ft. Hood and starts killing people to figure it out.

But when you see what was available on both of these people, the guy in Ft. Hood clearly should have been somebody that should have been thrown out of the army a long time before he ever had access to the base and this guy never should have been allowed on the airplane. And you wonder what the heck is going on that we can't spot these things.

KING: Former mayor of New York, Rudy Giuliani, we will talk about Sarah Palin, the future of his party and more, ahead.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RICHARD HEENE, FATHER OF BALLOON BOY: This was not a hoax. We had searched the house high and low. And --

FALCON HEENE, BALLOON BOY: we did this for the show.

KING: You're swearing that none of that was staged.

(END VIDEO CLIP)

KING: I want to remind you that Richard Heene, the father who led the whole country to believe his son was trapped in a runaway balloon, will be here Friday night, his first interview since he was sentenced to jail. He says it wasn't a hoax. That's Friday night's LARRY KING LIVE.

Our guest is Mayor Rudy Giuliani. Mayor, a study out of Duke University released today says that the threat posed by radicalized Muslim Americans has been exaggerated. Do you favor profiling?

GIULIANI: Well, you know, it depends on how you define profiling. You profile when you make a logical deduction about who the suspect is. If somebody calls me up and tells me that a person who just committed the crime is a 6'2" blonde guy, well then you look for 6'2" blond guys. And if you get a thousand reports like that, those are the people that you look for. So of course, you have to profile in the sense that you have to some criteria for what you're looking for. And if in fact, the major threat that is occurring comes from misguided, perverted Muslims, meaning people who are perverting the religion, then there is nothing wrong with putting more attention on that area than some other area. Otherwise, you're wasting a lot of resources and a lot of time. So it depends on whether the profiling is rationally based or its based on some kind of an unfair prejudice.

KING: And could that be a delicate line though?

GIULIANI: It is a delicate line. But if you take away the ability to use rational analysis for determining where the threats are coming from, you are putting yourself in great danger. I mean, the reality is, if in fact the threat is 90 percent coming from one area, and roughly 90 percent of your attention should be in that area. That isn't prejudice. That is rational sensible reaction to a set of facts and leads you in that direction. You couldn't solve any crimes unless you did that.

KING: The Justice Department has decided to try the accused 9/11 mastermind Khalid Sheikh Muhammad in New York City. Let's listen to what the president said and I'll have you comment.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I'm absolutely convinced that Khalid Sheikh Muhammad will be subject to the most exacting demands of justice. The American people will insist on it and my administration will insist on it.

(END VIDEO CLIP)

KING: Now Rudy, that's your city. You have tried cases there. They know how to do it in New York.

GIULIANI: They sure do.

KING: What are you concerned about?

GIULIANI: I think this could be one of the worst mistakes that any president has ever made.

KING: Why?

GIULIANI: Well first of all, he has military tribunals for other terrorists. If you are going to have military tribunals, then they obviously also can provide justice.

KING: If the crime was committed there, wouldn't you feel that all the people who lost relatives want that man tried in their city on their territory?

GIULIANI: Actually Larry, most of those people, not all, you never have all -- most of those people would rather see him tried in a military court. So the president didn't take their wishes into consideration. There is no question it adds a level of threat to New York, not the only kind of threat New York has, a tremendous burden. The mayor is asking for a significant amount of money to have to deal with this. I had to close down New York when we had similar trials when I was the mayor and it cost me a lot of time, a lot of attention.

And the reality is you're also by using this method, cutting yourself off from getting intelligence like he has done with the situation in Detroit. So I think is one of the big mistakes he has made. And the reality is, both he and the attorney general have already announced that this guy is guilty and I think one of them has said he's probably going to get executed.

So I mean, I don't know what they are talking about in terms of a fair trial. And I don't know what happens if he gets acquitted. The president of the United States can't be saying to the world, we're going to give him a fair trial, but he's going to get convicted.

So if we're doing this for public relations and creating these burdens on ourselves, I don't see why we want to do that. This man organized an attack from outside the United States on the United States. It was an attack very much like Pearl Harbor and nobody would have ever thought of prosecuting the people who attacked Pearl Harbor in a civilian court. President Lincoln didn't do that. President Roosevelt didn't do that, President Bush didn't do that. I don't know why President Obama wants to do that.

KING: Back with Rudy Giuliani in 60 seconds. (COMMERCIAL BREAK)

KING: Back with Rudy Giuliani. The president is fighting two wars, trying to keep the country safe at home. What kind of message does it send when the former vice president openly says that he is not seriously fighting the war? Do you think it's a good idea what Dick Cheney did?

GIULIANI: You know, Larry, nobody was really concerned about that when everybody criticized President Bush day in and day out including Democrats calling him all kinds of names when he was trying to prosecute the war in Iraq. And the reality is, that's just part of the First Amendment, part of debate. Vice President Cheney is entitled to his view. I share some of them. I don't share all of them.

My hope is -- and I really mean this. I hope that this administration does a mid-course correction much like President Clinton did, which I always thought essentially showed President Clinton's practicality in terms of being fair. I think he has gone way too far to the left, President Obama. President Clinton had some of those problems early in his administration. He made a mid-course correction and then accomplished a lot of good things -- welfare reform, other things like that, criminal justice reform.

I hope President Obama is in a learning process and we see a change for the good of the country. Forget partisan politics. I would like to see him reverse his decision on the trial in New York. And I would like to him treat these people who are trying to attack this country as enemy combatants so that we can get the maximum amount of information out of them. If he made corrections like that, I think that would show great leadership.

KING: You are in the security business. What do you make of the Newark airport, right next door to you, the breach last Sunday. We now learned that cameras were running, but they weren't recording. The TSA takes full responsibility. How do they let that happen?

GIULIANI: You know, these things happen and they shouldn't happen and we need a lot more concentration on it. And you know, I think maybe one of the good things that can come out of the situation that just happened in Detroit, which thank God didn't involve the loss of life is this can act as a wake-up call for us. We've become too lackadaisical since September 11th.

The threat to this country is just as great now as it was then. September 11 is not part of our history yet. It's still part of present. The same forces that wanted to attack us then, ideological misperceptions that were present then are present now. And we have got to invest a lot of our time and effort in making ourselves secure and you know, I think maybe we have become a little too lackadaisical, which may account for not connecting some of the dots for some of these mistakes that are occurring.

KING: When we come back, we'll ask Rudy Giuliani about guess what, politics. Don't be shocked. Don't go away, we'll be right back.

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KING: Let's get into some politics with Rudy Giuliani, the former mayor of New York. What do you make of Chris Dodd bowing out today?

GIULIANI: Well I guess it sounds to me like he's doing that probably for the good of the party, since they think they have a stronger candidate. Of course, I hope that gives us an opportunity, meaning the Republicans, to pick up a seat in Connecticut. I think the opportunity is out there for Republicans in this election year, are pretty darn good. You see all these Democrats resigning, opening up seats. An open seat is always easier to take than an incumbent seat. So who knows what it's going to be like in November. But right now, as a Republican, I'm feeling pretty good about the pickups that we can make this year.

KING: And Byron Dorgan also will not run.

GIULIANI: Yes, there's another one. I think that may be an example of what the president having pushed the agenda a little too far to the left, which is what I was saying before. We'll have to see if the president makes a correction or not because he is putting a lot of these seats, it seems to me, he's putting them in jeopardy, particularly in the House where you have a lot of Democrats sitting in districts that were Republican districts up until the last election or the one before that.

KING: All right, now your own party. Is Sarah Palin viable in the face of your party now?

GIULIANI: Sure. Gosh, who knows three years before a presidential election who the face of our party is. Sarah Palin is extremely popular, she's extremely articulate. She's somebody who's run for vice president and she has the right to make her case to the Republican Party, which will all happen after 2010.

But she certainly generates an enormous amounts of enthusiasm. Larry, I took her a baseball game last year. Judith and I took her to a baseball game at Yankee Stadium in the Bronx, which you know is Democratic territory and she got an absolutely great response. Everybody wanted to take a -- even the Democrats wanted to take pictures with her.

KING: It's a good sign. There is a "New York Times" report today that Democrat Harold Ford was moved to New York. Maybe will run the primary against the senator who replaced Hillary Clinton. Now we know that you can come into New York and win. Hillary Clinton, Robert Kennedy and others. Can Harold Ford be a viable New York candidate?

GIULIANI: I know Harold and I see him quite a bit at different things. New York is a place where we have a history like that. If we were talking about some other state, I would say that is a tough thing to do. It's a tough thing to come in and at least immediately run for the Senate. You can't run for governor in New York, you have to have a five-year residency. But you can run for the Senate. But gosh, I guess in New York, anything is possible.

KING: Why didn't you run for governor?

GIULIANI: I didn't want to leave my business and law firm right now. I took a lot of time off to run for president. A lot of things got disorganized. I put them back together. We are in the middle of and on the verge of doing a lot of exciting things like the thing in Brazil. My firm has grown. I started the New York office of Bracewell & Giuliani four years ago and it's gone from three lawyers to 70.

And we are continuing to grow. So this wasn't the right time to do it. It creates a tremendous amount of disruption in your business life. And I guess, I was enthusiastic about what I was doing. But that doesn't mean I'm not tremendously interested, I'm not going to help Republicans to the extent that they want my help and that I'm not going to be involved in all these issues because they are part of me.

KING: Republicans are constantly accused by the other side of being only negative. So tell me something you like about the president.

GIULIANI: Well I like the fact that he dealt with Afghanistan in the right way. I think that he had a tough choice to make. I did think he took a little too long in make, but that may be his decision style. But I support his realization and his acting on this campaign promise to make Afghanistan a priority.

I respect him as a leader. I think he has got enormous abilities to communicate. I wish he would use it for purposes that I agree with more. I hope -- and this I don't know about him because I don't know Barack Obama personally. I don't know the balance between ideology and practicality.

I worked for Ronald Reagan and Ronald Reagan is often described as a highly ideological, very right wing. Ronald Reagan was one of the most practical people I ever met and had an understanding that if you can get half a loaf, it's better than getting nothing. If you can get 60 percent or 70 percent, you probably won. You rarely get 100 percent.

I hope Barack Obama has that same capacity to readjust himself and having gone what I regard as too far to the left.

KING: One other thing, Rudy. How do you regard your old foe Senator Clinton as secretary of state?

GIULIANI: Well, I admire the job that she's doing. It's a very difficult job particularly for someone who has run for president, run against Barack Obama. I think she is doing -- from what I can tell, I don't know the internals of what goes on there, I think she is doing a good job. I've disagreed with Hillary Clinton quite often, but I have tremendous respect for her.

KING: Always good to see you, Rudy, we'll see you in New York.

GIULIANI: Thank you, Larry.

KING: Mayor Rudy Giuliani, the former mayor of New York City.