Far from being a hopeless dream, the advance of freedom is the great

story of our time. In 1945, there were about two dozen lonely

democracies on Earth. Today, there are 122. And we are writing a new

chapter in the story of self-government -- with women lining up to vote

in Afghanistan ... and millions of Iraqis marking their liberty with

purple ink ... and men and women from Lebanon to Egypt debating the

rights of individuals and the necessity of freedom. At the start of

2006, more than half the people of our world live in democratic

nations. And we do not forget the other half -- in places like Syria,

Burma, Zimbabwe, North Korea, and Iran -- because the demands of

justice, and the peace of this world, require their freedom as well.

No one can deny the success of freedom, but some men rage and fight

against it. And one of the main sources of reaction and opposition is

radical Islam -- the perversion by a few of a noble faith into an

ideology of terror and death. Terrorists like bin Laden are serious

about mass murder -- and all of us must take their declared intentions

seriously. They seek to impose a heartless system of totalitarian

control throughout the Middle East, and arm themselves with weapons of

mass murder. Their aim is to seize power in Iraq, and use it as a safe

haven to launch attacks against America and the world. Lacking the

military strength to challenge us directly, the terrorists have chosen

the weapon of fear. When they murder children at a school in Beslan ...

or blow up commuters in London ... or behead a bound captive ... the

terrorists hope these horrors will break our will, allowing the violent

to inherit the Earth. But they have miscalculated: We love our freedom,

and we will fight to keep it.

In a time of testing, we cannot find security by abandoning our

commitments and retreating within our borders. If we were to leave

these vicious attackers alone, they would not leave us alone. They

would simply move the battlefield to our own shores. There is no peace

in retreat. And there is no honor in retreat. By allowing radical Islam

to work its will -- by leaving an assaulted world to fend for itself --

we would signal to all that we no longer believe in our own ideals, or

even in our own courage. But our enemies and our friends can be

certain: The United States will not retreat from the world, and we will

never surrender to evil.

America rejects the false comfort of isolationism. We are the Nation

that saved liberty in Europe, and liberated death camps, and helped

raise up democracies, and faced down an evil empire. Once again, we

accept the call of history to deliver the oppressed, and move this

world toward peace.

We remain on the offensive against terror networks. We have killed or

captured many of their leaders -- and for the others, their day will

come.

We remain on the offensive in Afghanistan -- where a fine president and

national assembly are fighting terror while building the institutions

of a new democracy.

And we are on the offensive in Iraq, with a clear plan for victory.

First, we are helping Iraqis build an inclusive government, so that old

resentments will be eased, and the insurgency marginalized. Second, we

are continuing reconstruction efforts, and helping the Iraqi government

to fight corruption and build a modern economy, so all Iraqis can

experience the benefits of freedom. Third, we are striking terrorist

targets while we train Iraqi forces that are increasingly capable of

defeating the enemy. Iraqis are showing their courage every day, and we

are proud to be their allies in the cause of freedom.

Our work in Iraq is difficult, because our enemy is brutal. But that

brutality has not stopped the dramatic progress of a new democracy. In

less than three years, that nation has gone from dictatorship, to

liberation, to sovereignty, to a constitution, to national elections.

At the same time, our coalition has been relentless in shutting off

terrorist infiltration, clearing out insurgent strongholds, and turning

over territory to Iraqi security forces. I am confident in our plan for

victory ... I am confident in the will of the Iraqi people ... I am

confident in the skill and spirit of our military. Fellow citizens, we

are in this fight to win, and we are winning.

The road of victory is the road that will take our troops home. As we

make progress on the ground, and Iraqi forces increasingly take the

lead, we should be able to further decrease our troop levels -- but

those decisions will be made by our military commanders, not by

politicians in Washington, D.C.

Our coalition has learned from experience in Iraq. We have adjusted our

military tactics and changed our approach to reconstruction. Along the

way, we have benefited from responsible criticism and counsel offered

by Members of Congress of both parties. In the coming year, I will

continue to reach out and seek your good advice.

Yet there is a difference between responsible criticism that aims for

success, and defeatism that refuses to acknowledge anything but

failure. Hindsight alone is not wisdom. And second-guessing is not a

strategy.

With so much in the balance, those of us in public office have a duty

to speak with candor. A sudden withdrawal of our forces from Iraq would

abandon our Iraqi allies to death and prison ... put men like bin Laden

and Zarqawi in charge of a strategic country ... and show that a pledge

from America means little. Members of Congress: however we feel about

the decisions and debates of the past, our Nation has only one option:

We must keep our word, defeat our enemies, and stand behind the

American military in its vital mission.

Our men and women in uniform are making sacrifices -- and showing a

sense of duty stronger than all fear. They know what it is like to

fight house to house in a maze of streets ... to wear heavy gear in the

desert heat ... to see a comrade killed by a roadside bomb. And those who

know the costs also know the stakes. Marine Staff Sergeant Dan Clay was

killed last month fighting the enemy in Fallujah. He left behind a

letter to his family, but his words could just as well be addressed to

every American. Here is what Dan wrote: "I know what honor is. It has

been an honor to protect and serve all of you. I faced death with the

secure knowledge that you would not have to.... Never falter! Don't

hesitate to honor and support those of us who have the honor of

protecting that which is worth protecting."

Staff Sergeant Dan Clay's wife, Lisa, and his mom and dad, Sara Jo and

Bud, are with us this evening. Our Nation is grateful to the fallen,

who live in the memory of our country. We are grateful to all who

volunteer to wear our Nation's uniform -- and as we honor our brave

troops, let us never forget the sacrifices of America's military

families.

Our offensive against terror involves more than military action.

Ultimately, the only way to defeat the terrorists is to defeat their

dark vision of hatred and fear by offering the hopeful alternative of

political freedom and peaceful change. So the United States of America

supports democratic reform across the broader Middle East. Elections

are vital -- but they are only the beginning. Raising up a democracy

requires the rule of law, protection of minorities, and strong,

accountable institutions that last longer than a single vote. The great

people of Egypt have voted in a multi-party presidential election -- and

now their government should open paths of peaceful opposition that will

reduce the appeal of radicalism. The Palestinian people have voted in

elections -- now the leaders of Hamas must recognize Israel, disarm,

reject terrorism, and work for lasting peace. Saudi Arabia has taken

the first steps of reform -- now it can offer its people a better future

by pressing forward with those efforts. Democracies in the Middle East

will not look like our own, because they will reflect the traditions of

their own citizens. Yet liberty is the future of every nation in the

Middle East, because liberty is the right and hope of all humanity.

The same is true of Iran, a nation now held hostage by a small clerical

elite that is isolating and repressing its people. The regime in that

country sponsors terrorists in the Palestinian territories and in

Lebanon -- and that must come to an end. The Iranian government is

defying the world with its nuclear ambitions -- and the nations of the

world must not permit the Iranian regime to gain nuclear weapons.

America will continue to rally the world to confront these threats. And

tonight, let me speak directly to the citizens of Iran: America

respects you, and we respect your country. We respect your right to

choose your own future and win your own freedom. And our Nation hopes

one day to be the closest of friends with a free and democratic Iran.

To overcome dangers in our world, we must also take the offensive by

encouraging economic progress, fighting disease, and spreading hope in

hopeless lands. Isolationism would not only tie our hands in fighting

enemies, it would keep us from helping our friends in desperate need.

We show compassion abroad because Americans believe in the God-given

dignity and worth of a villager with HIV/AIDS, or an infant with

malaria, or a refugee fleeing genocide, or a young girl sold into

slavery. We also show compassion abroad because regions overwhelmed by

poverty, corruption, and despair are sources of terrorism, organized

crime, human trafficking, and the drug trade.

In recent years, you and I have taken unprecedented action to fight

AIDS and malaria, expand the education of girls, and reward developing

nations that are moving forward with economic and political reform. For

people everywhere, the United States is a partner for a better life.

Short-changing these efforts would increase the suffering and chaos of

our world, undercut our long-term security, and dull the conscience of

our country. I urge Members of Congress to serve the interests of

America by showing the compassion of America.

Our country must also remain on the offensive against terrorism here at

home. The enemy has not lost the desire or capability to attack us.

Fortunately, this Nation has superb professionals in law enforcement,

intelligence, the military, and homeland security. These men and women

are dedicating their lives to protecting us all, and they deserve our

support and our thanks. They also deserve the same tools they already

use to fight drug trafficking and organized crime -- so I ask you to

reauthorize the Patriot Act.

It is said that prior to the attacks of September 11th, our government

failed to connect the dots of the conspiracy. We now know that two of

the hijackers in the United States placed telephone calls to al-Qaida

operatives overseas. But we did not know about their plans until it was

too late. So to prevent another attack -- based on authority given to me

by the Constitution and by statute -- I have authorized a terrorist

surveillance program to aggressively pursue the international

communications of suspected al-Qaida operatives and affiliates to and

from America. Previous presidents have used the same constitutional

authority I have -- and Federal courts have approved the use of that

authority. Appropriate Members of Congress have been kept informed.

This terrorist surveillance program has helped prevent terrorist

attacks. It remains essential to the security of America. If there are

people inside our country who are talking with al-Qaida, we want to

know about it -- because we will not sit back and wait to be hit again.

In all these areas -- from the disruption of terror networks, to victory

in Iraq, to the spread of freedom and hope in troubled regions -- we

need the support of friends and allies. To draw that support, we must

always be clear in our principles and willing to act. The only

alternative to American leadership is a dramatically more dangerous and

anxious world. Yet we also choose to lead because it is a privilege to

serve the values that gave us birth. American leaders -- from Roosevelt

to Truman to Kennedy to Reagan -- rejected isolation and retreat,

because they knew that America is always more secure when freedom is on

the march. Our own generation is in a long war against a determined

enemy -- a war that will be fought by Presidents of both parties, who

will need steady bipartisan support from the Congress. And tonight I

ask for yours. Together, let us protect our country, support the men

and women who defend us, and lead this world toward freedom.

Here at home, America also has a great opportunity: We will build the

prosperity of our country by strengthening our economic leadership in

the world.

Our economy is healthy, and vigorous, and growing faster than other

major industrialized nations. In the last two-and-a-half years, America

has created 4.6 million new jobs -- more than Japan and the European

Union combined. Even in the face of higher energy prices and natural

disasters, the American people have turned in an economic performance

that is the envy of the world.

The American economy is pre-eminent -- but we cannot afford to be

complacent. In a dynamic world economy, we are seeing new competitors

like China and India. This creates uncertainty, which makes it easier

to feed people's fears. And so we are seeing some old temptations

return. Protectionists want to escape competition, pretending that we

can keep our high standard of living while walling off our economy.

Others say that the government needs to take a larger role in directing

the economy, centralizing more power in Washington and increasing

taxes. We hear claims that immigrants are somehow bad for the economy --

even though this economy could not function without them. All these are

forms of economic retreat, and they lead in the same direction -- toward

a stagnant and second-rate economy.

Tonight I will set out a better path -- an agenda for a Nation that

competes with confidence -- an agenda that will raise standards of

living and generate new jobs. Americans should not fear our economic

future, because we intend to shape it.

Keeping America competitive begins with keeping our economy growing.

And our economy grows when Americans have more of their own money to

spend, save, and invest. In the last five years, the tax relief you

passed has left 880 billion dollars in the hands of American workers,

investors, small businesses, and families -- and they have used it to

help produce more than four years of uninterrupted economic growth. Yet

the tax relief is set to expire in the next few years. If we do

nothing, American families will face a massive tax increase they do not

expect and will not welcome.

Because America needs more than a temporary expansion, we need more

than temporary tax relief. I urge the Congress to act responsibly, and

make the tax cuts permanent.

Keeping America competitive requires us to be good stewards of tax

dollars. Every year of my presidency, we have reduced the growth of

non-security discretionary spending -- and last year you passed bills

that cut this spending. This year my budget will cut it again, and

reduce or eliminate more than 140 programs that are performing poorly

or not fulfilling essential priorities. By passing these reforms, we

will save the American taxpayer another 14 billion dollars next year --

and stay on track to cut the deficit in half by 2009. I am pleased that

Members of Congress are working on earmark reform -- because the Federal

budget has too many special interest projects. And we can tackle this

problem together, if you pass the line-item veto.

We must also confront the larger challenge of mandatory spending, or

entitlements. This year, the first of about 78 million Baby Boomers

turn 60, including two of my Dad's favorite people -- me, and President

Bill Clinton. This milestone is more than a personal crisis -- it is a

national challenge. The retirement of the Baby Boom generation will put

unprecedented strains on the Federal government. By 2030, spending for

Social Security, Medicare, and Medicaid alone will be almost 60 percent

of the entire Federal budget. And that will present future Congresses

with impossible choices -- staggering tax increases, immense deficits,

or deep cuts in every category of spending.

Congress did not act last year on my proposal to save Social Security,

yet the rising cost of entitlements is a problem that is not going away

-- and with every year we fail to act, the situation gets worse. So

tonight, I ask you to join me in creating a commission to examine the

full impact of Baby Boom retirements on Social Security, Medicare, and

Medicaid. This commission should include Members of Congress of both

parties, and offer bipartisan answers. We need to put aside partisan

politics, work together, and get this problem solved.

Keeping America competitive requires us to open more markets for all

that Americans make and grow. One out of every five factory jobs in

America is related to global trade, and we want people everywhere to

buy American. With open markets and a level playing field, no one can

out-produce or out-compete the American worker.

Keeping America competitive requires an immigration system that upholds

our laws, reflects our values, and serves the interests of our economy.

Our Nation needs orderly and secure borders. To meet this goal, we must

have stronger immigration enforcement and border protection. And we

must have a rational, humane guest worker program that rejects amnesty

... allows temporary jobs for people who seek them legally ... and reduces

smuggling and crime at the border.

Keeping America competitive requires affordable health care. Our

government has a responsibility to help provide health care for the

poor and the elderly, and we are meeting that responsibility. For all

Americans, we must confront the rising cost of care ... strengthen the

doctor-patient relationship ... and help people afford the insurance

coverage they need. We will make wider use of electronic records and

other health information technology, to help control costs and reduce

dangerous medical errors. We will strengthen Health Savings Accounts --

by making sure individuals and small business employees can buy

insurance with the same advantages that people working for big

businesses now get. We will do more to make this coverage portable, so

workers can switch jobs without having to worry about losing their

health insurance. And because lawsuits are driving many good doctors

out of practice -- leaving women in nearly 1,500 American counties

without a single OB-GYN -- I ask the Congress to pass medical liability

reform this year.

Keeping America competitive requires affordable energy. Here we have a

serious problem: America is addicted to oil, which is often imported

from unstable parts of the world.

The best way to break this addiction is through technology. Since 2001,

we have spent nearly 10 billion dollars to develop cleaner, cheaper,

more reliable alternative energy sources -- and we are on the threshold

of incredible advances. So tonight, I announce the Advanced Energy

Initiative -- a 22-percent increase in clean-energy research at the

Department of Energy, to push for breakthroughs in two vital areas. To

change how we power our homes and offices, we will invest more in

zero-emission coal-fired plants; revolutionary solar and wind

technologies; and clean, safe nuclear energy.

We must also change how we power our automobiles. We will increase our

research in better batteries for hybrid and electric cars, and in

pollution-free cars that run on hydrogen. We will also fund additional

research in cutting-edge methods of producing ethanol, not just from

corn but from wood chips, stalks, or switch grass. Our goal is to make

this new kind of ethanol practical and competitive within six years.

Breakthroughs on this and other new technologies will help us reach

another great goal: to replace more than 75 percent of our oil imports

from the Middle East by 2025. By applying the talent and technology of

America, this country can dramatically improve our environment ... move

beyond a petroleum-based economy ... and make our dependence on Middle

Eastern oil a thing of the past.

And to keep America competitive, one commitment is necessary above all:

We must continue to lead the world in human talent and creativity. Our

greatest advantage in the world has always been our educated,

hard-working, ambitious people -- and we are going to keep that edge.

Tonight I announce the American Competitiveness Initiative, to

encourage innovation throughout our economy, and to give our Nation's

children a firm grounding in math and science.

First: I propose to double the Federal commitment to the most critical

basic research programs in the physical sciences over the next ten

years. This funding will support the work of America's most creative

minds as they explore promising areas such as nanotechnology,

supercomputing, and alternative energy sources.

Second: I propose to make permanent the research and development tax

credit, to encourage bolder private-sector investment in technology.

With more research in both the public and private sectors, we will

improve our quality of life -- and ensure that America will lead the

world in opportunity and innovation for decades to come.

Third: We need to encourage children to take more math and science, and

make sure those courses are rigorous enough to compete with other

nations. We have made a good start in the early grades with the No

Child Left Behind Act, which is raising standards and lifting test

scores across our country. Tonight I propose to train 70,000 high

school teachers, to lead advanced-placement courses in math and science

... bring 30,000 math and science professionals to teach in classrooms ...

and give early help to students who struggle with math, so they have a

better chance at good, high-wage jobs. If we ensure that America's

children succeed in life, they will ensure that America succeeds in the

world.

Preparing our Nation to compete in the world is a goal that all of us

can share. I urge you to support the American Competitiveness

Initiative ... and together we will show the world what the American

people can achieve.

America is a great force for freedom and prosperity. Yet our greatness

is not measured in power or luxuries, but by who we are and how we

treat one another. So we strive to be a compassionate, decent, hopeful

society.

In recent years, America has become a more hopeful Nation. Violent

crime rates have fallen to their lowest levels since the 1970s. Welfare

cases have dropped by more than half over the past decade. Drug use

among youth is down 19 percent since 2001. There are fewer abortions in

America than at any point in the last three decades, and the number of

children born to teenage mothers has been falling for a dozen years in

a row.

These gains are evidence of a quiet transformation -- a revolution of

conscience, in which a rising generation is finding that a life of

personal responsibility is a life of fulfillment. Government has played

a role. Wise policies such as welfare reform, drug education, and

support for abstinence and adoption have made a difference in the

character of our country. And everyone here tonight, Democrat and

Republican, has a right to be proud of this record.

Yet many Americans, especially parents, still have deep concerns about

the direction of our culture, and the health of our most basic

institutions. They are concerned about unethical conduct by public

officials, and discouraged by activist courts that try to redefine

marriage. And they worry about children in our society who need

direction and love ... and about fellow citizens still displaced by

natural disaster ... and about suffering caused by treatable diseases.

As we look at these challenges, we must never give in to the belief

that America is in decline, or that our culture is doomed to unravel.

The American people know better than that. We have proven the

pessimists wrong before -- and we will do it again.

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