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SECRETARY RICE: Well, Iran -- no, it's not as if we haven't tried to talk to them. Twenty seven years of policy. And we set this up very deliberately to give an opportunity to talk to the Iranians at a high level and about anything.

QUESTION: Right. Okay.

SECRETARY RICE: Open -- we didn't say, oh, and by the way, when you suspend and we come to the table, we'll just talk about your nuclear weapons programs. You bring up anything you want and we'll bring up anything we want. And we did that because you -- the consensus you can't break which is the consensus that's actually leading to the -- had led now to the Chapter 7 resolution is that Iran needs to suspend its enrichment and reprocessing activities because while you're talking, they're improving their nuclear capability. This is not a good outcome.

And so again, what is the cost? The cost is that you give Iran a channel outside of the internationally agreed channel which is suspend and negotiate -- to negotiate. So I see that one -- I do see that one as different, but it -- again, it has costs and it's not as if we haven't given every opportunity. You know, I remember when someone in Iran said, well, maybe they would suspend for two months. And I was asked, well, that's not (inaudible). Two months, let them suspend for two months, we'll get started. We'll see what happens. So we've tried to be actually very flexible and for reasons that I don't fully understand, but it may have to do with internal dynamics in Iran, they haven't been able to engage.

QUESTION: In terms of Iran's arms trade into Iraq, the President makes a very forceful statement, says have you -- are we to read from this that the U.S. would engage in cross border hot pursuit of people bringing in arms or insurgent elements into Iraq?

SECRETARY RICE: Obviously. You know, I'm not going to speculate about what we would do, but I -- let me just quote what Pete Pace said yesterday in his press conference which is that he -- that their view is this can be done inside Iraq. These networks are operating inside Iraq. This is essentially an intelligence function followed up by action. We've done it a couple of times. We're going to keep doing it. So that's the plan.

The other point that the President was making is the United States has longstanding interests in the Persian Gulf. And you can go back and read statements all the way back to Truman or Carter about America's ability and willingness to defend its interest in the Persian Gulf and those of our allies. And so you know, some of the work that we're doing on helping our friends in the region improve their security capability, defensive security capability, is very important also to counter Iranian assertiveness.

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QUESTION: I want to follow up with one thing on that line because I think another thing that people might not understand is whatever else Americans might think of Iran, they'd say well, this is just Iran. I mean, are we -- and they want to be a regional power in the area and they obviously have some tools to do that and they're getting more. But are we increasing their stature by making them into a boogeyman? I sometimes think their rhetoric suggests to people that, you know, well, they weren't that big a deal, but we sure are making them one? How do you balance that and is that a fair criticism do you think?

SECRETARY RICE: Yeah. We don't want them to become the kind of regional -- the kind of regional challenge that they could become. They're a pretty bad regional already. But over time, if they're -- you know, their arms and legs, Hezbollah, even now links into Hamas, the ability to have nefarious intellects in Iraq. They're going to have influence in on Iraq -- Iraq's neighbors. That's not a problem. But the kind of influence that destabilizing their and their ability to marry that with a nuclear weapon suggests to me that it's quite a big problem, but you can -- we still have time, I think to arrest these developments. It means rallying those states that are concerned about it. It means being very tough on the nuclear issue. Some of the financial measures that we are engaged in, which are collateral to the Chapter 7 resolution I think are having an affect. So you need to put that policy in place.

But a piece of this is not very often I think seen, as we're also reaching out to the Iranian people. This is a great culture. The tragedy is there should be good relations between the United States and Iran. It's a great culture, it's a great people. But the -- it's not possible with this regime clearly, but we have a group of wrestlers from the United States going to Iran in a couple days. We've had medical personnel from Iran here. They went to the CDC and, you know, and places like that. So we're trying to reach out to the Iranian people, too, and to keep open the hope of the Iranian people for a democratic future.

QUESTION: One of the powers you're trying to rally is China. You've had recent conversations with the Chinese official visiting here on Chinese investment in Iranian oil fields. Obviously I guess it's in the U.S. -- what the U.S. wants to have China not pour a great amount of capital into that country so that they can upgrade their oilfields, which badly need upgrading.

SECRETARY RICE: Well, China will make its own choices about this, but I think you are seeing a decline in interest in investing or certainly guaranteeing investment in Iranian oil fields because what happens is that the market and private entities act both on risk and on reputation. And when you're under Chapter 7 you are a financial risk and you're a reputational risk. Now, China may decide to go outside of that, but it's hard to imagine that that is a relationships that is going to be sufficient to supplant the need for investment in capital from the rest of the world.

QUESTION: Did you receive assurances from China that they would think carefully before proceeding with these --

SECRETARY RICE: We are not asking people. We haven't asked people not to invest in Iran. We've made clear that -- the downsides of investing in Iran.

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