WOLF BLITZER, HOST: Welcome back to "Late Edition." I'm Wolf Blitzer in Washington.

From the ports deal collapse to Iraq to the Hurricane Katrina response, lots of bad news for Republicans -- appearing to give the Democrats their best chance in years for regaining a majority in the U.S. Congress.

But the party is finding that's easier said than done.

Joining us here in Washington is the Democratic National Committee chairman, Howard Dean.

Governor Dean, welcome to "Late Edition."

HOWARD DEAN, DNC CHAIRMAN: Thanks for having me on, Wolf.

BLITZER: You just heard the ambassador, Zalmay Khalilzad, say that this has been a good day in trying to form a new government of national unity in Iraq. A recent Washington Post/ABC News poll asked if Democrats in Congress have a clear plan for Iraq.

Seventy percent said they do not have a clear plan. Only 24 percent said they have a plan.

The Democrats seem to be all over the place.

DEAN: Well, certainly wouldn't say we're all over the place. The resolution that was passed by the Senate was originally a Democratic resolution, which said: This will be a year of transition, that we will -- in fact, there was a letter to the president from Senator Levin, who I think will be on this show a little bit later, Senator Collins, and Senator Reed, Jack Reed, saying that it's time for the Iraqis to get their house in order and we have to make clear that we're not going to be there forever and we need to make this the transition year.

So I do think that we do have a plan. We are much more united than we appear in the newspapers.

And I think -- as often happens -- small differences of opinion get blown up as newspaper articles.

BLITZER: Is this going to be the big issue -- Iraq -- this upcoming mid-term election year?

DEAN: I think big issues will be security, the desire for a change, and honesty and openness in government. I think we win on all three of those.

I think the people of this country have lost confidence in the president's ability to defend us, principally because he hasn't been very truthful with the American people.

BLITZER: And specifically on which he hasn't been truthful, are you saying he lied to the American people?

DEAN: I'm saying that he misled us not just on Iraq and not just on Katrina, but he misled us on issues -- for example, how much the drug benefit for Medicare was going to cost and then what a mess that was going to be; misled us on the fact that he said he was going to fire anyone who leaked information, and Karl Rove still has a security clearance today.

You know, this is not an administration that's been terribly truthful to the American people -- and I think the American people realize that now.

So what we offer is real reform. You can see the Republicans in the Senate have now backed off any kind of lobbying reform. Well, we still think that you shouldn't take private jet flights, you shouldn't take free lunches -- and we ought to change the conference committee routine so you can't stick things, like the Republicans stuck in before Christmas, $20 billion giveaways to HMOs and oil companies.

Those are fundamental ethics reforms that ought to be made. I don't care if the Abramoff scandals have faded into the background because of all this other business; we need to make those changes.

We need real openness and honesty in government again.

BLITZER: So what I hear you saying is that you really feel the Democrats could take over control -- at least of the House, but maybe the Senate this year -- is that what you're saying?

DEAN: Yes. If we are relentless about the same message in 435 districts. I make no bones about this. I look at Newt Gingrich as the model for how to do this.

BLITZER: What he did in '94.

DEAN: Yes. I certainly don't agree with much of his political views, but I certainly think his strategy was excellent.

Give a consistent message about what Democrats want: honesty and openness in government, American jobs that will stay in America using energy independence as a new industry to create those jobs, a strong national defense based on telling the truth to the American people and our soldiers. Those are the kinds of things where we can really make difference -- health care...

BLITZER: It sounds, Governor...

DEAN: ... a health care system that works for everybody. Those things we've all agreed on -- governors, senators, congressmen, mayors have all agreed on those things.

BLITZER: It sounds like you want to have a contract for America the way that Newt Gingrich had his contract for America?

DEAN: Well, if we do, we certainly won't call it that. But there are some fundamental things...

BLITZER: Well, what are you guys thinking of calling it?

DEAN: Who knows? I mean, we haven't got to an agreement on that. I'm actually meeting with the leadership again this week to have further discussions.

But the agenda is very clear. Again: honesty and openness, security, jobs, health care, education, and retirement security.

BLITZER: Here's one of the biggest problems you have -- is money. And money in politics, as you well know -- as in a lot of other areas -- talks.

According to these Federal Election Commission statistics, the Republicans raised $103 million over the past year. Democrats have raised $50 million. That's a two to one advantage that they have.

DEAN: It's also not exactly accurate. If you throw in what the DCCC and the DSCC, the Senatorial Committee have raised...

BLITZER: Those are the Democratic House and Senate committees.

DEAN: ...and match us all together, it's not anything close to two to one. The DNC has had a record year. We raised 20 percent more money when we couldn't take soft money than has ever been raised in an off year before. We have now 200 organizers in every state in the country, which we've had now for several months, three years before the next presidential election. These folks for the first time are going to be able to help out in congressional elections.

BLITZER: But the Republicans still have a lot more money.

DEAN: Yeah, but, you know, if money won this election we'd have a Democrat in the White House right now. It's infrastructure that you have to have. We need to fight in every state and stop trying to think we're going to be a national party if we have an election in 18 states. We need to be in every state.

BLITZER: Speaking of infrastructure, and there's a lot that goes into winning elections, there was a little bit of a stir this week. Harold Ickes, a top adviser to Hillary Clinton and to Bill Clinton, he was a former White House deputy chief of staff under Bill Clinton, let me read to you what The Washington Post wrote on Wednesday: "Ickes and others involved in the effort acknowledge that their activities are in part a vote of no confidence that the DNC under Chairman Howard Dean is ready to compete with Republicans on the technological front." What he's trying to do, and our Mary Snow reported it this week as well, is he's trying to create some new computer statistics, some new technology to help someone like Hillary or someone else move down the road in 2008 to get the kind of advantage they need to recapture the White House.

DEAN: We looked at what they're doing. It's a fine thing for outside -- for in terms of outside organizations. But the Democratic National Committee has to be the one that develops the voter file to be used by Democratic candidates. That's the law. We now have, based on what my predecessor did in terms of gathering information, we now have a technological platform that will do that.

BLITZER: But he says the database isn't good enough, and that's why he wants to create another one. We're talking about Harold Ickes.

DEAN: The database is very, very good. I brought my own technological people from my campaign to do it. And one thing, you may or may not have liked what I did in the campaign, but nobody argues with the technical skills of my folks.

And we brought them in. They're creating what needs to be done, and we'll have that ready, not just for senators and Congressmen. It has to be ready for mayors, for city councilors, for state representatives. You can't win the presidency unless you can start doing what we're now doing in places like Mississippi and Alabama and Missouri and Utah. We're now starting to win races on the ground.

BLITZER: So is Harold Ickes wrong?

DEAN: I would disagree with Harold. He's a friend of mine, but I wouldn't agree with him on this one.

BLITZER: So they're just basically wasting money. They could use the DNC for their purposes.

DEAN: I wouldn't say he was wasting money. He may want to do this for his own purpose, but it won't basically help candidates. They have to rely on hard money. It can't help federal candidates.

BLITZER: Is Hillary Clinton too liberal to win the presidency?

DEAN: You know, I don't discuss 2008 at all because I have to be the referee in this one. Hillary Clinton is running for the United States Senate. She's done a terrific job in New York. And I think she'll sit down and decide what her options are afterwards, but right now she's very focused on New York City and we don't know for sure...

BLITZER: New York state.

DEAN: Excuse me. Well, New York state and New York City. And we have no idea if she's going to run or not. And I know everyone in Washington thinks, oh, Hillary's going to run, Hillary's going to run. I know Hillary Clinton very well. She's a very smart person. She'll figure out what's best for her and what's best for New York and make sure that New Yorkers are well taken care of no matter what she does in her future.

BLITZER: I'll just put it up on the screen. Our latest CNN/USA Today/Gallup poll among registered Democrats has her as the choice for 2008 39 percent, John Kerry at 15, Al Gore at 13, John Edwards at 12, Mark Warner and Joe Biden at 5. At least at this early stage, that could simply be name recognition.

DEAN: We all know that whatever happens today may have absolutely no relevance whatsoever in what's going to happen in November of 2008. We have to focus on 2006, Wolf. We really do. I believe that we can take back the House and the Senate.

You know, America really wants a change, and the bottom line in this next election, do you want more of the same or do you want a change? And the Democrats can represent the things that people really want changed: honesty and openness in government, real security changes, a health care system that works for everybody. Those are fundamental things that people want to see done differently.

BLITZER: I've spoken to a lot of Democrats, and you speak to a lot more than I do. They are really sensing that they could win in this November, given all the problems the Republicans have had, the president, the White House, Katrina, Iraq, Scooter Libby, the vice president's former chief of staff, the vice president shooting his friend in the face in that hunting accident, the warrantless wiretaps, the Dubai ports deal.

So much negative stuff for the Republicans. If the Democrats don't take advantage of this, as one person said to me, there's going to be all hell to pay.

DEAN: Well, first of all, I'd prefer not to look at it as taking advantage of Republican weaknesses. After all, what's really at stake here is the future of the country. This country's become much weaker under President Bush, not just security and the outsourcing of our ports operations and all that, but the deficits. We're about to vote next week on a new debt ceiling. I think the Democrats are going to vote no. And thank God. Somebody has to be fiscally responsible in this country.

And the Republicans have lost the mantle of fiscal responsibility. Democrats are the only party in the last 40 years who have run a surplus under Bill Clinton. We've got to return us to the basics, return this country to the basics, where we're focused. You know, the president talks about homeland security. Well, homeland security means hometown security. And the Republicans have forgotten about ordinary people in the streets of America.

BLITZER: Let me get your reaction to this proposal. As you know, for years the Iowa caucus was first going forward with the presidential nominee, followed by the first primary in New Hampshire. There's now a recommendation out there that after the Iowa caucus there be two other caucuses in other states that may be more diverse than Iowa or New Hampshire before there's the first primary in New Hampshire. Is this a good idea?

DEAN: Well, it's certainly a good idea to have more geographic diversity and more ethnic diversity in the Democratic nominating process. After all, we are the most diverse party, certainly in this country, and probably the most diverse party on the face of the earth in terms of the different kinds of people who keep us in power. And who we need to put us back in power.

So I'm very supportive of this notion that diversity, both geographic and ethnic, in the prewindow.

We are committed to leaving Iowa first as the first caucus in the country and New Hampshire as the first primary in the country.

BLITZER: But do you support adding two caucuses between those two events?

DEAN: Well, I'm not going to -- you know, there's some wriggle room. The only commitment I'm going to make to you right now is there will be earlier events, and there will be some events, or at least one event in between Iowa and New Hampshire, and there will be before the window somewhere between four and six events, including Iowa and New Hampshire. That's what the commission recommended. I haven't had a chance to sit down with the rules committee. But we will have diversity in the prewindow.

BLITZER: Howard Dean is the chairman of the Democratic Party. Thanks for joining us.

DEAN: Thanks, Wolf.