captioning sponsored by macneil/lehrer productions >> brown: republicans cheered their victory in a solidly democratic new york house race last night calling it a rebuke of administration policies. good evening, i'm jeffrey brown. >> ifill: and i'm gwen ifill. on the "newshour" tonight: new york one correspondent errol louis and "newshour" political editor david chalian explain what the upset means for president obama's sinking political fortunes. >> brown: then, ray suarez examines the congressional probe of a failed solar-panel company that received federal loan guarantees worth half a billion dollars. >> ifill: from cairo, margaret

warner reports on the rise of egypt's oldest and most established islamic movement, in the aftermath of the arab spring. >> now the muslim brotherhood, long confined to only social and religious service, could soon become the dominant force in the government. >> brown: and we assess the looming showdown at the united nations as palestinian officials push for statehood and a vote in the general assembly. that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by: >> i mean, where would we be without small businesses? >> we need small businesses. >> they're the ones that help drive growth. >> like electricians, mechanics, carpenters. >> they strengthen our communities. >> every year, chevron spends billions with small businesses. that goes right to the heart of local communities, providing jobs, keeping people at work. they depend on us. >> the economy depends on them. >> and we depend on them.

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>> ifill: president obama and his party faced the fallout today from losing a u.s. house seat they had long held. at the same time, new poll numbers showed growing unhappiness with the way things are going. >> we've been asked by the people of this district to send a message to washington and i hope they hear it loud and clear. ( cheers and applause ) >> ifill: republican businessman bob turner claimed victory last night in the race to fill disgraced congressman anthony weiner's vacant seat. >> i am telling you, i am the messenger. heed us. this message will resound for a full year and will resound into 2012. the only hope that our voices are heard and we can start putting things right again.

>> ifill: turner defeated democrat david weprin by eight points in a brooklyn-queens area district where no republican had won since the 1920s. weiner resigned in june after admitting he'd sent lewd photos of himself online. democrats got equally bad news in another special election in nevada, where republican mark amodei beat the democrat by 22 points. the chair of the national republican congressional committee, pete sessions, laid the election results at the white house door. saying in a statement: white house press secretary jay carney, traveling with the president to north carolina today, warned against reading too much into the republican victories.

but the loss of the heavily democratic new york district came at a time when the president's own numbers are sinking. a bloomberg news poll released today found that only 9% of americans feel confident the economy won't slide back into recession. and nearly three-quarters of the respondents said the country is on the wrong course. the president has been hoping his new jobs plan will help turn around the economy, and put a brake on that growing pessimism. he pitched his job creation proposal for the fourth time in a week. congress, he insisted, must put aside politics to come up with a solution. >> we're in a national emergency. we've been grappling with a crisis for three years and instead of getting folks to rise up above partisanship in a spirit that says we're all in this together you've got folks

who are purposely dividing. purposely. thinking just in terms of how does this play out in terms of this election. >> ifill: but house speaker john boehner read the results of the new york special election differently. turner's victory, he said, delivered a strong warning to the democrats that the president's party is on the wrong track. for more on the meaning of last night's results, we are joined by errol louis, host of "inside city hall," a program about new york city and state politics that airs on new york one. and "newshour" political editor david chalian. erroll louis, what is it about this district that made it slip last night from democrat to republican? >> well, it's an unusual district, gwen, where president obama won with 55% of the vote, which sounds like a pretty broad margin, but for new york city it's actually pretty close. it's also a district that has a

very large immigrant population from the former soviet union, they tend to vote conservatively. there's also a very large con conservative jewish population and they vote very conservatively. so it was always a district that would split its vote. it went for rudy giuliani, the republican, over the decades. it also voted for gore and it voted for obama. so you can never really pin it down and that tension really sort of came to a head in the special election. the republicans carried the day. >> ifill: you know, normally we go back and forth about whether these special elections have any larger national impact. were the issues that brought about this outcome local or national? >> it's very interesting. they really very much ignored local issues and the republican and the democrat both said it was a national race. so the democrat said we've got a tea party candidate running and if you want to send a message to push back the tea party, vote for me. the republican candidate-- who prevailed-- said "we've got a problem with president obama's policies towards israel and

problems with economic policy and if you want to send a message to washington, vote for me." so they both really nationalize it had race as best they could and in retrospect it wasn't such a smart strategy for the democrat. >> ifill: we've been talking a lot about the economy here in washington, obviously around the country as well. was that a drag for the would be incumbent for the democrat? >> well, i think it was a problem. the republican candidate, bob turner, said he got into all of this purely because, as a retired businessman... he's 70 years old, a successful retired executive who never held public office. he said he was tired of watching what was going on with the economy, he was tired of seeing policies that he thought would fail and he wanted to be heard. and he wanted somebody to go out there and as he put it, light a candle and that's what he did. so the economy was front and center and there's no corner of this country, gwen, where you can go where people are not concerned about the lack of jobs the sagging income, the inability to get credit. it's a long-standing problem and

it's the problem for the democratic administration. >> ifill: and david, how much were the problems of a democratic administration a problem for him. >> well, they had to be. he ran as a democrat and said he wanted to support the president and he supports the president's plan for jobs and he supports the president's approach to health care and all of these are controversial within this district. there were a lot of people who have some grave doubts about it. this was a chance for them to express those doubts and i don't think the democrats really understood exactly how uneasy people are with what's going on with the president's policies. to that extent, i think there this really was a bit of a wakeup call for them. >> ifill: so david chalian, special election, one congressional district or not, are the democrats freaked out about this on a national basis? >> they're expressing concern and real concern. we can't overinterpret. it is one special election or two, actually, that was race in nevada we can get to in a moment as well.

but what special elections do, they don't predict the future, they don't tell us, oh, this means exactly this will happen a year from now. but they do give us a snapshot of the current political environment. and right now when the democrats were 0-2 last night, the current political environment is really bad for them. so the psychological impact on the party is actually what democrats fear the most, democrats in charge of the democratic national committee, the campaign committees on the hill, the obama reelection campaign. what they're hearing from democrats now is real concern and worry, and that has a way of feeding on itself and that's what the obama team is trying to tamp down. >> ifill: you mentioned nevada. that was supposed to be... that was a republican seat, it was expected to be continued as a republican seat. why is that a haar binger for the democrats? >> well, it was a republican seat and although it was pretty close in the last presidential election because nevada swung so heavily towards barack obama's direction. it is a battleground state, though, where the obama campaign is going to invest a lot of time

and resources and try to keep in its column next year and specificically in that congressional district, gwen, what shaw county is a battleground county. barack obama won that county by some 12 or 13 points against john mccain in 2008. just about half the vote in that congressional district. the republican trounce it had democrat there yesterday. so there are signs there that it's not just easily written off and, trust me, the obama campaign is not writing it off as just a republican district. there's lessons to be learned there, too. >> ifill: it's not just the president's approval ratings or lack thereof, not just the right track/wrong track polling numbers. there seems to be just a growing sense of pessimism among american voters. >> whitey bulger david t problem in new york is not so much the problem as barack obama but the same problem barack obama has which is exactly this: when you are the democrat in charge of the white house, this kind of pessimism is going to weigh on you and your political prospects.

there is a bloomberg poll out today, gwen, and we saw that only... that famous ronald reagan question: are you better off now than you were four years ago. only 27% of the country said they're better off than when barack obama took office. that's fundamental question getting at how people are feeling, how the economy is permeating everybody's political outlook and that doesn't bode well for the president at this moment in time. >> ifill: certainly not for the future. so the democrats are looking at this and they say, well, we just get better candidates or a better set of issues or do they look at this and say there is something fundamentally wrong that we have to tackle here? >> they look at this understanding how great their challenge is. yes, they want to recruit the best candidates possible, but what they see here is-- and, again, specifically the obama reelection campaign, they look at this and they say, listen, we are going to have to bring yet new voters again into the process in 2012 if we are going to be successful, they say. so they are in a process-- a year and a half long process--

identifying young african american hispanic voters that have not voted before, that have not participated to bring them into the fold, that's one mission. >> ifill: to try to expand their base? >> right. and literally alter electorate. one of the things democrats keep saying about new york nine today is that well, this electorate doesn't look like the way the country is going to look, all these republicans showed up. well, the republicans showed up because that's where the enthusiasm is right now. so the enthusiasm gap that we saw exists in the 2010 midterms last year is still here. we see hit in the fund-raising right now, the d.n.c. had a really bad fund-raising month in argue and the r.n.c. had one of their best off year fund-raising month. so all in these different factors we continue to see the energy and enthusiasm on the republican side right now. so the president needs to enliven and awaken his base, he needs to reach out to new voters and alter shape of the electorate so he has a better chance than right now polls would suggest and he needs to keep that conversation going with the independent voters that have totally defected from him since 2008.

the polls suggest they are going to need to be energized, which is why a lot of democrats say, hey, it's someone like rick perry who is the nominee, that can go a long way in energizing the democratic base. >> ifill: erroll louis, up in new york, are democrats, elected officials, people who will absorbing the impact of this election, are they beginning to say, you know, there is something... something smells bad here? something we have to fix in the end and that involves stiff-arming the president? >> i don't think so. actually, gwen, i think's an interpretation here that's going around that they blew it locally. and it was really the whole democratic establishment. i mean, it was stunning how all of the big guns... i mean, our very popular governor was doing robocalls former president bill clinton was doing robocalls for them. the scene at his headquarters last night looked as if it was a candidate's forum for the 2013 mayoral race. everybody's who's even thought

about running for mayor was there, all of the major unions were committed, everybody was involved and it just didn't make a difference. in a district where there's a 3-1 registration advantage for democrats. so they've got to rethink both their tactics and the underlying philosophy that led to this. but, no, the sven thinking is that they didn't have such a great candidate, that he made some mistakes and that if it weren't a special election their normal what sheenry would have produced the outcome they expected, even though they seriously outspent the republicans. now i think that might be a little short-sighted, but that's my sense of how they see it here locally. >> ifill: erroll louis of new york 1, david chal i don't know of the newshour, thank you both very much. >> thank you. >> thank you. >> brown: still to come on the "newshour": what went wrong at a solar-panel company; the rise of the muslim brotherhood in egypt and the palestinian bid for statehood. but first, the other news of the day. here's hari sreenivasan. >> sreenivasan: wall street had an upbeat day. stocks rose amid new signs that european leaders would act to prevent greece from defaulting on its debt.

the dow jones industrial average gained nearly 141 points to close at 11,246. the nasdaq rose 40 points to close at 2,572. markets in europe also finished higher. the rally came as leaders of greece, france, and germany held an emergency teleconference. at the same time, european commission president jose manuel barroso warned there is no simple solution to the debt crisis. >> we are confronted with the most serious challenge of a generation. this is a fight for the jobs and prosperity of families in all our member states. this is a fight for the economic and political future of europe. this is a fight for what europe represents in the world. this is a fight for european integration itself. >> sreenivasan: in a related development, the italian parliament passed a new austerity plan to reduce italy's deficit by $70 billion over the next three years. hundreds of demonstrators protested in rome against the

plan's tax hikes and spending cuts. the protesters threw smoke bombs as they clashed with police in riot gear. a major investigation of last year's gulf oil spill put the overall blame on b.p. today. the u.s. coast guard and the federal bureau that regulates offshore drilling issued a final report. it said: the report said b.p. violated a series of federal rules on the well's cement seal and blowout preventer. both failed, leading to the deaths of eleven rig workers and the worst offshore spill in u.s. history. a new wave of attacks struck at iraqi security forces today. at least 19 people died in three separate incidents. more than 50 others were wounded. the worst attack was south of baghdad, near hillah. a car bomb blew up outside a busy restaurant as local police were eating inside. at least 15 people died there.

in afghanistan, an assault on the heart of kabul finally ended after 20 hours with 27 afghans and insurgents dead. nato helicopters and troops killed the last insurgents in an unfinished high-rise building. from there, the militants had fired on the u.s. embassy and other key structures. u.s. marine general john allen commanding nato forces conceded the militants won a propaganda victory. but the american ambassador ryan crocker rejected comparisons to the communist tet offensive in vietnam, in 1968. >> you know, this really is not a very big deal. it was a hard day for the embassy and my staff, who behaved with enormous courage and dedication. but look, you know, a half a dozen r.p.g. rounds from 800 meters away that isn't tet offensive, that's harassment. >> sreenivasan: crocker accused the haqqani network-- based in

pakistan-- of carrying out the assault. officials in iran sent mixed signals today about the fate of two american hikers arrested in 2009 and convicted of spying. the judiciary system said it is still reviewing bail for shane bauer and josh fattal. it gave no indication when a decision would come. just yesterday, president mahmoud ahmadinejad said a court had set bail of $500,000 dollars apiece and the two would be freed within days. nasa has unveiled the general plans for its powerful new rocket to take astronauts into deep space. shown in this animation, the giant space launch system would allow manned exploration of asteroids and mars. it would carry six astronauts and more than three times the payload of the now-retired space shuttles. in washington today, senator bill nelson of florida-- chair of the science and space subcommittee-- said the program will cost $18 billion over the next five years. >> we are in an era in which have to do more with less. all across the board. and the competition for the

available dollars will be fierce. but what we have here now are the realistic costs that have been scrubbed by an outside independent third party in their study of nasa. >> sreenivasan: nasa hopes to start unmanned test flights of the new rocket in 2017, with the first crew in space by 2021. the summer-long texas heat wave has reached another milestone. on tuesday, it was over 100 degrees in wichita falls for the 100th day this year. the old record was 79 days, set back in 1980. and laredo reached 100 again today, for the 115th time this year. just last week texas officially recorded the hottest june, july and august in the country ever. there was bad news today in the latest s.a.t. results for american high schoolers. reading scores for the class of 2011 were the lowest on record. and the combined reading and math scores were the lowest

since 1995. the college board administers the test. it said the record size and diversity of those being tested affected the results. those are some of the day's major stories. now, back to jeff. >> brown: and we turn to another looming problem for the obama administration: did the white house inappropriately push along financial help for a now- bankrupt solar-panel manufacturer? a congressional hearing today focused on the administration's very public embrace of the company. ray suarez has the story. >> suarez: it began in september of 2009 with vice president joe biden on a video link, announcing a federal stimulus loan for solyndra. nine months later, in may of 2010, president obama toured the solar panel company in fremont, california. it was part of his push to use the stimulus for creating green technology jobs. >> less than a year ago, we were standing on what was an empty lot.

but through the recovery act, this company received a loan to expand its operations. this new factory is the result of those loans. when it's completed in a few months, solyndra expects to hire a thousand workers to manufacture solar panels and sell them across america and around the world. ( applause ) >> suarez: all told, solyndra received $527 million in federal aid, one of many companies to receive stimulus money in the form of loan guarantees. but foreign competition proved too much, and solyndra filed for bankruptcy in august, closing its doors and laying off more than a thousand employees. even before then, as far back as six months ago, house republicans had charged the loan was ill-conceived, and they began investigating. the issue went before an energy and commerce sub-committee. republican fred upton of michigan chairs the full committee. >> in this time of record debt, i question whether the government is qualified to act

as a venture capitalist, picking winners and losers in speculative ventures and shelling out billions of taxpayer dollars to keep them afloat. >> suarez: a top official at the energy department jonathan silver said the green tech loan program is about more than just solyndra. >> this isn't picking winners and losers; it's helping ensure that we have winners here at all. we invented this technology and we should produce it here. the question is whether we are willing to take on this challenge or whether we will simply cede leadership in this vital sector to other nations and watch as tens of thousands of jobs are created overseas. >> suarez: but a report in today's "washington post" added fuel to the fire. it said internal e-mails from the office and management and budget showed concerns that the loans were granted too quickly. in one, an unidentified aide wrote:

republican steve scalise of louisiana said the letter highlighted a history of troubling communication involving solyndra. >> and yet there were warning signs at every level, and yet, it seems like crony capitalism was trumping the smart decision making process and due diligence that should have been going on and a lot of these emails show that to be the case, and yet >> suarez: company officials had contributed campaign funds to president obama and democrats. but white house spokesman jay carney denied any favoritism was involved in speeding the loan approval. he said, "it had nothing to do with anything besides the need to get an answer to make a scheduling decision." and committee democrat diana degette of colorado complained republicans had been irresponsible in handling the e- mails. >> i am just as much concerned about this solyndra loan as everybody else is, but the way that the information has been parceled out. the witness don't have the full

copies in front of them, the minority doesn't have the full copy in front of them until we ask for them, that is not in the grand tradition of this subcommittee. >> suarez: two of solyndra's top executives did not testify today. another hearing is planned next week, and they are expected to speak then. carol leonig has been reporting on this story for the "washington post" and watched the hearing today. she joins us now. we saw those exchanges on capitol hill today. did they help fill in any part of this story? did we learn anything new about the life cycle of solyndra? >> not a terrible lot was learned about the life cycle of solyndra but you heard a more full-throated explanation from the department of energy and the office of management and budget inside the obama administration, why they believe the... you know, that they were making good decisions at every juncture when it came to extending support to solyndra and when it came to extending sort of a crisis

lifeline to solyndra earlier this year. >> suarez: what was the nature of the relationship? was cash transferred from the federal government to this private company? >> it's a complicated transaction but here's the basic effort of this program. $38 billion in the loan guaranty program basically is to invest in clean energy technologies and different companies that offer to do that through a government-backed loan. in the case of solyndra, they won the government-backed loan, but they also got it from a federal treasury bank at a very low interest rates. so it's basically like the government saying we will guarantee that if you can't pay this half billion dollar loan-- which is what solyndra got-- we'll pay it off. which means taxpayers will pay it. >> suarez: so now that the company has gone bankrupt, taxpayers are on the hook for, what? the whole amount? >> well, energy officials tell me that they are concerned that it will be a large portion of

the half billion that has been dispersed to solyndra so far. they're worried about what kind of assets the company really has even if it sells them in bankruptcy and what what other debts it has to its investors. what taxpayers will get may be very small. >> suarez: so the government lines up with other creditors at this point? >> yes. >> suarez: has a government program with a subsidy to a company like this ever failed this spectacularly before? >> well, there's a long history in federal policy going back to probably roosevelt of different ways in which the government has tried to stimulate a targeted industry and has made a mistake along the way. what's unusual is this is the first big public misstep for what has been obama's showcase of recovery. here is the way the president does... he has generated jobs and tried to spur a new industry on american soil. a lot of economists say that's really a noble goal but that

perhaps the d.o.e.-- the department of energy-- didn't always have the xe ten city to make the best selections about which projects would really fly. >> suarez: well, if you just nopd of the story you may be scratching your head, but what attracted federal offices to a company like solyndra in the first place? >> they have said repeatedly that the innovation that solyndra was offering was... gave it extra marks. the innovation was essentially, you know, a photo vole tashg panel that goes... to that stores solar energy and is usable inside a building and stores energy. but what was unusual about this one was it would be expensive to manufacture the panel but it would be cheap to install it on big box wal-mart stores and that gave it an edge. the problem was that solyndra's equipment was so expense i have to produce that they never got to take advantage of the low

cost for installation. but here's the issue, actually, with solyndra and why people have so many questions about them. this company was flagged by independent auditors in 2010 as being pretty quick to burn through cash. and even when they were applying to the department of energy in 2009 for this very large, whopping loan guaranty, internally these e-mails showed that even at the department of energy there were staffers saying "they've got cash flow problems that we can see off in the distance." and, indeed, that's exactly what happened. they burned through a lot of cash and at the beginning of this year they confided privately to the administration they were going to go bankrupt unless they got emergency cash. >> suarez: well, didn't the obama administration at that point double down and give them some of that emergency cash? >> in a form, yes. they pressed investors to put in a little extra cash in exchange for an agreement that they could get their cash out first, their

new cash. they also agreed that they would let them repay the lobe more slowly and they also agreed special terms whereby solyndra would keep getting installingsments on the existing loan. remember you don't give the whole half billion all at once. so from that time of warning until today, taxpayers have now got another $67 million extended to this company that was really on the brink of collapse. >> suarez: now, this was a company that approached the bush administration for a similar kind of help and was in the process of this request. it got handed over to the new administration. did it not get approved during the bush term because there were perceived problems with it then or was it on its way? >> there's a lot of spin on both sides on that. it's a great question that you ask. it's true that they applied around bush administration program which was eventually recycled by the obama administration and given new life. but the problem with the bush

administration program is it was never really fully funded so applicants complained bitterly that it wasn't really attractive to them. the white house says, you know, look, the bush administration was looking at this program, they thought solyndra was really attractive, on the other hand, republicans point out that as literally as the bush administration was walking out the door there were committee meetings to discuss should we move forward with this loan and the vote was no, we have more questions about cash issues actually. so were they about to land a big loan with the bush administration? unlikely. were they being reviewed as a serious contender? it looks like they were. >> suarez: to be continued. carol li leonig of the "washington post," thanks for joining us. >> thank you. >> ifill: next, two reports on the changing middle east. first, from cairo, margaret warner reports on the most potent political force in post-

revolution egypt-- the muslim brotherhood. >> reporter: he al farouk hospital in cairo welcomes 800 to 1,000 people a day from it was built more than 20 years ago, not by the government or a private charity, but by the muslim brotherhood, egypt's oldest and most well-established islamic movement. the brotherhood operates 21 such hospitals throughout egypt, providing modern medical care at subsidized prices. and he is hugely grateful to his benefactor. >> of course, i come here because of brotherhood. they provide services better than the government. >> reporter: now the muslim broterhood-- long confined to offering only social and religious services-- is poised to possibly become the dominant force in the government. since the ouster of president hosni mubarak seven months ago, all islamist movements are free to take part in politics.

the brotherhood quickly formed a political wing-- the freedom and justice party-- to compete in novembers parliamentary elections. though campaigning is not officially permitted this early, the freedom and justice party's banners hang throughout cairo. but the party is taking it slow. it has pledged to restrict itself to running in only half of the districts this time. former brotherhood official essam el erian, now vice president of the party, says that means they wont have a majority on its own, but hopes that the wider egyptian democratic alliance they've joined does. >> we are not going to have a lone majority in the incoming parliament. but we aiming and targeting to have more than 30-35% seats, and with our alliance we can achieve a majority, because we need a

>> reporter: why wouldn't the brotherhood so well known, financed and organized throughout egypt, far ahead of any other group go for the maximum number of seats? the reasons are both practical and strategic. analyst amr hamzawy says despite its huge advantages, the brotherhood knows its limits in what it ready for and what the country and the world will accept. >> they know quite well that they do not have in terms of caliber and skills, enough people to run egypt on their own. they have a clear understanding of the fact that the international environment nor the regional environment can take an egypt which is dominated by islamists as of now. and they have patience. i mean that movement has been out for 80 years, so they know to be patient when they play politics. >> reporter: the egyptian voters they're trying to appeal to are 90% muslim, 10% coptic christian. many are religiously pious, but lifestyles run the gamut.

at a recent rally in tahrir square saw women in technicolor headscarves and designer jeans; but also in black abayas. men ran the gamut from club kids to bearded imams and one philadelphia phillies fanatic a long way from the south side facing east, and leading prayers. we heard concern about the brothers political advantages over secular parties and their aims. >> ( translated ): the only political force that has a real platform or experience is the brotherhood. so it's not fair for them to be competing against these other parties, which need to be given a fair chance. >> reporter: 40-year-old mother inez aly, not veiled at all, was very worried about the broterhood's social agenda. >> they want to take the country to iran and to the saudi arabia; i don't know where. >> reporter: ridiculous, said the freedom and justice party's el erian: >> that is the wrong perception. we are not going to impose any model of islam for the people.

egyptians are muslims, christians and religious and obeying and obedient for their faithful lives without any compulsory power. >> reporter: that may be el- erian's own view, says analyst hamzawy, but others in the brotherhood do want government to enforce the islamic sharia code of behavior and punishment more strictly. >> where there are tensions, where there disagreements within the movement and between the movement and its constituencies, its crowd out there in egyptian society with regard to sharia; the place of sharia in egyptian politics. are they going to be happy with the reference which we've had before; principles of sharia as islamic law or are they going to push for an implementation, a full-fledged implementation of sharia? >> reporter: during decades of repression, the brotherhood stuck together. but now splits are emerging. abdel monem aboul fatouh, for decades a top brotherhood

figure, was expelled from the party last summer for defying the movement's decision not to enter the presidential election to come. he thinks the extent of sharia enforcement in egypt now is just fine. >> ( translated ): i don't think there is a lot to change. we're going to turn egypt into an islamic state? this is extremists' talk. >> reporter: why is that extremist? >> ( translated ): what the extremists group say now is that egypt was not islamic and it's time to turn to islam again and i disagree with that. i believe that islamic civilization came after the coptic civilization and before that the pharaohs, so we are not remaking egypt, what we want to do is fix it. >> reporter: though the presidential election is months after the november parliamentary one, fatouh already has ten

offices in cairo, more nationwide , and thousands of volunteers. former colleague el-erian dismisses the threat posed by party. aboul-fatouhs split from the party. >> i hope when he sees the whole scene after our democratic >> reporter: one thing aboul- fatouh and el-erian do agree on- - the really hard-line islamic agenda is being pushed by the fundamentalist salafist movement. on july 29, millions of conservative islamists flooded tahrir square in a show of force that sent a shudder through much of egyptian society; many were

salafists, whose sect reveres an original 7th century application of islam. >> ( translated ): salafis aren't calling for a theocracy. we're calling for a civilian islamic state, too. >> reporter: 36-year-old architect mamoud fathy is planning to run from the salafist party he co-founded, al fadila, or virtue. he says that sharia law should be more vigorously enforced. >> ( translated ): we'd be mindful of the climate we'd slowly enforce it in stages. then after, people cross the red lines, then they'll be punished. >> reporter: but, ultimately, that's the best way to prevent theft? >> of course. >> reporter: would you require women to cover their hair? >> ( translated ): on veiling of women, we would refer to expert

institutions, those that focus on sharia law. if they say, yes, women should be wearing the veil, then the state will encourage that, and if women say they don't want to wear the veil, then we'd ask the expert institution to say, what is the punishment. >> reporter: essam el erian welcomes the salafists to the debate, but dismisses their prospects. >> egyptians are moderate people. i think even if other extremists from any side go to the ballots they cannot win more than 5% to 7% of seats. >> reporter: but analyst hamzawy isn't so sure. >> radical interpretations win especially in moments of uncertainty, of instability. and we are going through moments, a phase, of instability in egypt. yes, it's not a radical country, but that has very little to with moderation or lack of moderation in politics. that's a different issue.

>> reporter: soon egyptians will decide. >> ifill: in her next story, margaret profiles three revolutionaries who've found different paths after the spring uprising. >> brown: finally tonight, our second middle east story: the looming showdown at the united nations over a palestinian state. >> brown: furniture makers in the west bank have been crafting a chair for palestinian authority president mahmoud abbas to take to new york next week for the opening of the u.n. general assembly. it's embroidered with the message: "palestine's right-- a full membership in the united nations." abbas has said that's exactly what he wants. >> we will go to the united nations. we will go together to the united nations to get a full membership for a palestinian state in this global forum. >> brown: israel has strongly opposed the move. and foreign minister avigdor

lieberman warned the palestinians today to think twice. >> ( translated ): the one thing that i can say with full confidence is that the moment that they make a unilateral decision, there will be grave and difficult consequences, and i hope that we don't reach those grave and difficult consequences. >> brown: the obama administration has expressed its own opposition. secretary of state hillary clinton spelled out u.s. concerns again on tuesday, after meeting with the romanian foreign minister. >> i think the issue is not simply that action in new york will not bring peace and stability, but it will create more distractions toward achieving that goal, which is certainly the commitment of the obama administration. and so we have to keep our eye on what the objective truly is. but our hope is that we get the parties back into a frame of mind and a process where they

will actually begin negotiating again. >> brown: in fact, attempts to re-start negotiations between israel and the palestinians toward a deal on borders and other issues broke down last year. the resulting stalemate has helped fuel the palestinians' push for recognition at the u.n. now, last-minute efforts to avert a diplomatic collision, or something worse, are underway, with a number of high level delegations in the middle east this week. they include u.s. special envoy david hale and dennis ross of the national security council. plus, the european union's foreign policy chief catherine ashton. >> what we are very clear about from the european union is that the way forward is negotiations. we want to see a just and fair settlement; we want to see the people of palestine and the people of israel living side by side in peace and security. >> brown: ultimately, the united states has threatened to veto the statehood proposal, if it

comes before the u.n. security council. the palestinians could instead take their case to the full u.n. general assembly and seek non- voting "observer-state status," similar to that of the vatican. we look at the stakes and risks in all this now, with daniel kurtzer, a former u.s. ambassador to israel and to egypt. he's now a professor at princeton. and robert malley, former national security council staff member in the clinton administration. he's now with the international crisis group. daniel kurtzer, start with you. today we saw this press continuing by the u.s. and other western officials to try to head off a vote. explain what has them so concerned. what's going on? >> well, i think there are two concerns that the administration is trying to head off. number one, that the move by the palestinians to the u.n. could in some ways foreclose an early opportunity to return to negotiations. as your report indicated, we

haven't had negotiations for quite some time, but there's a concern that this will simply drive the parties further apart as they take unilateral steps against each other. the second, more serious concern has to do with the possibilities that the palestinians will use their new u.n. status to gain standing in international legal institutions such as the international criminal court or the international court of justice and to transform what has been a diplomatic process into a legal process of holding settlement illegal, settlement... israeli soldiers and so forthcoming under the jurisdiction of the international institutions and these could lead to very dire consequences down the road. >> brown: rob malley, what's your take? what are people afraid of the impact of a vote? >> i think everything apltsz dorr kurtzer said is right. the other thing is is they know if it goes the security council they'll veto it for all the reasons one could think of and added to that the political reasons. president obama does not and the

administration does not want to appear to be in any way opposed to israel at a times when elections are about to occur in this country, close elections. and they know if they agree to a that resolution at a time of grate uncertainty and flux in the middle east it could ignite greater hostility toward the united states at a time when it's the last thing that the united states wants to see. >> brown: what we just saw with margaret? have >> exactly. we have to balance those two so the hope the administration has that this goes away and that they can convince the palestinians to abandon their quest. >> brown: i'll stewart you robert. back up a bit. what led to this push by the palestinians to come to the u.n.? >> in some ways it's a paradoxical situation. you have president abbas, the palestinian president, who has never believed in going to the u.n. for his entire life. he's believed in negotiations, he's believed in reaching out to the u.s. and israel and yet how's now presiding over the most determined effort by the palestinians to take this to that international institution.

what it reflects, what it's systematic of is the fact that the palestinians have lost faith in every other avenue. they don't believe in negotiations anymore, they don't believe in what the u.s. can do. they certainly don't believe in israeli good will and so president abbas almost against his better judgment has been forced into the position of saying if i have nothing else i need show my people i'm trying to do something. i'm going to take it to the u.n. >> brown: does that sound right to you, ambassador kurtzer? and bring israel into this. we heard from mr. lieberman in our clip. what is going on there as they watch what's going on? >> well, i think that's exactly right, the palestinian frustration has reached a kind of boiling point. you know, the last serious effort by the administration to move the peace process forward, which was president obama's may 19 speech, was greeted by absolute rejection by the state of israel and a kind of modified rejection by the palestinians. so the peace process is really dead in the water and the palestinians, i think, don't see much of an alternative and to

try to gain some diplomatic advantage from it. the problem, of course, on the israeli side is that there will be voices like that of vig dorr lieberman who will call for retaliation, either withholding necessary funds that are transferred every month by israel, collected from customs and duty such as increased settlements building such is the possibility, even of unilaterally annexing some of the territories, some of the west bank. any one of those will escalate this crisis into very serious waters. and i think that's of great concern to the administration. >> brown: and, of course, rob malley, this comes, again, as you brought up, in the context of the larger upheaval in the middle east, israel feeling more isolated by all of this. >> i mean, look at what's happening just... what's happened and what's about to happen. you've had the storming of the israeli embassy in cairo. you've had turkey, which is now using language against israel which is quite extraordinary as a reaction to the flotilla event that occurred when israel

attacked a ship that was trying to enter gaza and you now have the u.n. vote with the palestinians which is going to have, no matter what, very broad support from most countries in the world. so for many israelis and particular those in the government, they view this and they say we're being surrounded, we're under siege, this is not a time when they feel particularly confident and they just don't know where the arab spring is headed because it may head in all kinds of different directions. >> brown: and what about risks for the palestinians? you mentioned president abbas has not pushed this before. we've already had some members of the u.s. congress say if this goes forward we're getting rid of funding for the palestinian authority. >> right. well, i think ambassador kurtz also mentioned what israel might do which is more costly to the palestinians because two-thirds of their budget is covered by the transfer of the tax revenues collected by israel. so they could lose... they could create hostility from the administration, they could lose whatever they get from israel. a lot of things are at stake. but this is really an era, in a way, where everyone is looking at domestic politics.

i said earlier that the administration is concerned about not alienating constituents here that are supportive of israel. >> brown: this goes back to our first segment tonight in new york. >> i think it's a wakeup call, another alarm bell. in israel, as we just heard, there's some on the right in particular who are saying how can you not respond to a... to this type of gesture and they're pressuring prime minister netanyahu to react quite aggressively and president abbas of course, is also concerned that he comes back and he's reneged on his commitment to go to u.n., he will face a torrent of domestic criticism. >> brown: so ambassador kurtzer, what is the state of play then given all these pressures? are the palestinians hearing the push from all sides? are they responding to it? what do you see going on? >> well, there are two pathways that are still available, although it's very late. they both involve diplomacy. one is for the united states and the international quartet-- russia, the u.n., and the

european union-- to articulate a peace proposal that both sides can adopt and that the palestinians have said would give them confidence to set aside their u.n. gambit. this is very unlikely, but it's still possible in the next week or so. the other possibility is for the united states to join efforts led now by some europeans to try to craft a u.n. resolution that doesn't set us back very far. in other words which provides the palestinians with some diplomatic opening but that also may provide israel with some gains and benefits and perhaps preserves the possibility for future jigss. so diplomacy is not dead but it's very late for all of us to have woke woken up and the administration's got to get into this into a much higher gear over the next week before president abbas delivers his speech to the u.n. on the 23rd. >> brown: briefly, rob malley, do you see some way forward?

>> i think it's more or less what we just heard. two things. number one, i think the palestinians are going to need to get an upgrade of statehood status because without that president abbas looks like he surrendered and second of all i think-- and this is where diplomacy comes in-- both israelis and palestinians have to be told to cool it off after the vote. the palestinians shouldn't rush to the international criminal court and israelis should not either cut off funding, expand settlements. we just issued a report and called it "curb your enthusiasm". >> brown: rob malley and daniel kurtzer, thank you both very much. >> ifill: again, the major developments of the day: republicans cheered their victory in a solidly democratic new york house district, as president obama took another hit in the latest poll. white house e-mails raised questions about how a silicon valley solar panel company won federal stimulus funding. the firm went bankrupt last month and markets in europe and on wall street rallied amid signs of possible progress on preventing a greek default.

margaret's reporting from cairo continues online. hari sreenivasan has some details. hari? >> sreenivasan: hear what ordinary egyptians think about the state of the revolution today. their photos and comments are on the rundown blog. today's morning line from david chalian and our politics beat offers more insight into the republican victories in new york and nevada. plus, you can sign up to get their analysis delivered to your inbox every morning on our politics page. and on paul solman's making sense page, find a lighter look at the country's jobs problem with a roundup of political cartoons. all that and more is on our web site: newshour.pbs.org. >> brown: and again to our honor roll of american service personnel killed in the iraq and afghanistan conflicts. we add them as their deaths are made official and photographs become available. here, in silence, are nine more.

>> brown: and that's the "newshour" for tonight.

on thursday, ray suarez talks with historian michael beschloss about some surprisingly candid conversations with former first lady jacqueline kennedy about her husband as well martin luther king and others. i'm jeffrey brown. >> ifill: and i'm gwen ifill. we'll see you online and again here tomorrow evening. thank you and good night. major funding for the pbs newshour has been provided by: and the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you.

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