Transcript: National Security Adviser Gen. James Jones and Sen. John McCain, R-Ariz.

STEPHANOPOULOS: But if the president is against the policy, why not suspend prosecutions and investigations while that review continues?

JONES: Well, maybe that's an option that eventually we'll get to but we're not there now.

STEPHANOPOULOS: A lot of your former colleagues in the military, a thousand flag and general officers including 50 four stars have written a letter to the president opposing any change in the policy, saying that their past experience as military leaders make them concerned about it. They think it's going to have effect on morale, discipline, unit cohesion, what do you say to your former colleagues?

JONES: Well, I think - as I said, this is illustrated by the fact that this is a very sensitive issue and it has to be discussed over time and it has - all sides have to be heard. But I think most of us who have served in the military believe that the standards of conduct is what determines the good order and discipline. So as long as conduct by all members of the military is not detrimental to the good order and discipline, then you have cohesion in the ranks.

But there is ...

STEPHANOPOULOS: But that gets to the heart of the problem. I mean, if you're saying any kind of homosexual act is conduct ...

JONES: I'm saying that it applies - it has to be a uniform policy for all members of the military in order to function as a military has to function. We will have long discussions about this. It will be thoughtful. It will be deliberative. The president I know will reach out to fully understand both sides or all sides of the issue before he makes a decision.

STEPHANOPOULOS: But it will be overturned.

JONES: I don't know. We'll have to - the president has said that he is in favor of that. We'll just wait - we'll have to wait and see - as a result of the deliberations and as a result of the - in the months and weeks ahead. We have a lot on our plate right now. It has to be teed up at the right time so - to do this the right way.

STEPHANOPOULOS: Let me ask you one final question. Prime Minister Netanyahu of Israel is coming to the United States next week. He will be here next Monday and the Israeli newspaper "Haaretz" reported on a telegram, reporting on a meeting between you and a European foreign minister.

Let me show you what that said. It said that, "according to this telegram you told the foreign minister, 'The new administration will convince Israel to compromise on the Palestinian question. We will not push Israel under the wheels of a bus put we will be more forceful toward Israel than we have been under Bush.' Jones is quoted in the telegram as saying that the U.S., E.U. and moderate Arab states must redefine a satisfactory end game solution."

Does that mean you're going to press Prime Minister Netanyahu to full accept a two-state solution?

JONES: I think it means that this administration is going to engage fully. That is to say, using all aspects of the interagency process to make sure that the security of Israel is not compromised, that the issue of Palestinian sovereignty also has its place at the table. There are many expectations around the world, in the Arab World and in the European community that we are at a moment where we can make progress with regard to the Middle East. It's going to take American leadership and American involvement and I think the signal is going to be that all levels of our government we're going to do everything we can to encourage this longstanding problem to gradually come to - show clear progress that we're intent on ...

STEPHANOPOULOS: Is there any way to make progress if Israel doesn't say they're clearly for a two state solution.

JONES: I think obviously Israel has said it's for a two state solution, at least...

STEPHANOPOULOS: The prime minister hasn't said that yet.

JONES: That was the position of the former government. And we understand Israel's preoccupation with Iran as an existential threat. We agree with that.

And by the same token, there are a lot of things that you can do to diminish that existential threat by working hard towards achieving a two-state solution. This is a very strategic issue. It's extremely important. And we're looking forward to having a good, constructive dialogue with our Israeli friends when they visit Washington in the next seven or eight days.

STEPHANOPOULOS: General Jones, thank you very much for your time this morning.

JONES: It's my pleasure to be with you, thanks.

STEPHANOPOULOS: And let me bring in Senator John McCain.

Welcome again.

MCCAIN: Thank you, George.

STEPHANOPOULOS: You just heard General Jones, let's pick up right there. Does President Obama have to say quite clearly to Prime Minister Netanyahu, we've got to begin with the two-state solution?

MCCAIN: Well, I think that it has been previous policy in previous Israeli governments. We respect the results of a democratic process. And the fact is that I think that we have to push the entire peace process forward.

But I'm not sure the timing is right, right now, with a new government in Israel for us to dictate to them their policy. But I applaud the Obama administration's renewed efforts to try and move this process forward.

STEPHANOPOULOS: Let me also ask you about Guantanamo. You saw that the general and I talked about that. And you and President Obama share the same goal where you both say that Guantanamo should be closed. You and the president share the same goal on the enhanced interrogation techniques.

Yet, especially on Guantanamo right now, it appears that there has been rising opposition to the Congress -- to this, what appears to be a necessity, that some of these detainees are going to have to come to the United States.

So how do you work with President Obama to meet the goal that you both have set? MCCAIN: Well, I don't know how you walk it back to the initial announcement. To announce you're going to close Guantanamo within a year, and not have a comprehensive package for how you address these issues that understandably have arisen.

I mean, what do you do -- what kind of process do you put the people through that remain? How do you ensure that they don't return to the battlefield, as about 10 percent of them have, including some very high-ranking people?

What should have taken place, in my view, was the announcement of the closing and an announcement of exactly how we're going to put these people on trial. The Military Commissions Act that Senator Graham and I originally proposed is clearly what they are returning to.

How you -- where you're going to put the people that are enemy combatants that you don't have enough information to convict them, but it's clear that they can't come back...

(CROSSTALK)

STEPHANOPOULOS: That key group, the 5,200, are probably going to have to come and be detained here in the United States, correct?

MCCAIN: I don't know what they're going to do. Because...

STEPHANOPOULOS: Would you be opposed to that?

MCCAIN: I would certainly be -- would -- well, I don't know if I would be "opposed" to it, because I would probably want to judge them on a case-by-case basis. I understand the local objection. And senators and congressmen objection to saying, here are some people that we're just going to dump onto the community.

But we could have avoided all of this if there had been an announcement of the closure of Guantanamo and the process for resolving the cases of people who are detained there, whether you release them, whether you ask other countries to take them, what the process for trial is, what the process of those that you just discussed who are "enemy combatants" but you can't convict.

That is a terrible mistake. Announce the closure, but don't address the underlying problems that a lot of us have been wrestling with for years.

STEPHANOPOULOS: So -- but how do you fix it now?

MCCAIN: I would say, I'm not going to close Guantanamo until I have a comprehensive approach to every aspect of this problem of the detainees. I have put them on trial, who tries them, what are the rules of evidence? What is the case of interrogation techniques that were used? At which time that that evidence would be admissible.

There's a whole series of subsequent issues.

STEPHANOPOULOS: So you're no longer for closing -- you're no longer for closing.

MCCAIN: I'm for closing Guantanamo, and I said I was for closing it. But I'm for a comprehensive solution of all of the issues surrounding Guantanamo, which now obviously are facing serious roadblocks in Congress, because the announcement was made without addressing the underlying problems associated.

STEPHANOPOULOS: So relax the deadline, no January deadline?

MCCAIN: I would relax -- I said I wanted to close Guantanamo, but I also said I wanted to address all of the issues. So I never set a deadline. But so, no, I wouldn't set a specific date until I had resolved all of the issues surrounding the detainee question, including a military commission that would be appointed and authorized to address some of these cases.

STEPHANOPOULOS: How about this issue of "don't ask, don't tell"?

STEPHANOPOULOS: It's now been bedeviling the military for 15, 16 years right now. Growing support to reform the policy. More than 100 members of Congress say it should be reformed. Former chairman of the joint chiefs, General Shalikashvili, have said it should be reformed. Where are you on that today and how would you reform the policy if at all?

MCCAIN: Again, I've said for months, I will be glad to have a thorough review of the policy by the Joint Chiefs of Staff and their recommendations. You might recall it was General Powell who weighed in back early on in the Clinton administration that said we need to have this policy and it's been successful. We now have the best- trained, best-equipped, most professional military in the history of this country in my view.

So I would rely on a study by the Joint Chiefs of Staff as how the impact of changing this policy would have on our ability to carry out our military missions and then I would make judgments from there.

But in all due respect, right now the military is functioning extremely well in very difficult conditions. We have to have an assessment on recruitment, on retention and all the other aspects of the impact on our military if we change the policy.

In my view, and I know that a lot of people don't agree with that, the policy has been working and I think it's been working well.

STEPHANOPOULOS: But let me ask you about your party. Not working ...

MCCAIN: Not working.

STEPHANOPOULOS: Not working as well. You've got this "Time Magazine" cover this week saying, "Endangered Species, the Republicans". Is your party an endangered species?

MCCAIN: I probably would not go that length. We all work in cycles for many years. We have seen parties down and parties up. That's a great thing about American politics. But having said that, do we have to do a better job of getting our message out? Do we have to do a better job recruiting candidates? Do we have to do a better job of outreach? Outreach to many Americans that don't feel that they can be part of our party? Absolutely. Absolutely.

And this conversation that Eric Cantor, which some have criticized and others have begun, I think it's a great thing. Why not have a conversation with the American people. Find out what they want.

STEPHANOPOULOS: Vice President Cheney has been part of that conversation as well and he's been saying that the party should not moderate. Here's what he said this week.

(BEGIN VIDEO CLIP)

DICK CHENEY, FORMER VICE PRESIDENT: I think it would be a mistake for us to moderate. The idea that we ought to moderate basically means we ought to fundamentally change our philosophy. And I for one am not prepared to do that and I think most of us aren't.

(END VIDEO CLIP)

MCCAIN: I think we're kind of in a word game here. I don't want to moderate, either. I think our policies, the principles of our party are as viable today as they have in the past. In all due respect, the previous administration, by letting spending get completely out of control, by betraying some of those principles of our party, cost us a couple of elections.

And maybe I didn't do a good enough job communicating with the American people. But we have to improve our outreach and our communication and that doesn't mean betrayal of principles. I think maybe it means that adjusting to the 21st century in communications, in values, in goals, in all the things the American people want.

STEPHANOPOULOS: But some of your closest associates say it's more than a communications problem.

MCCAIN: It is.

STEPHANOPOULOS: Your former campaign manager Steve Schmidt came out and said unless the party has a more live and let live philosophy on issues like gay rights and gay marriage, your own daughter has taken the same position, you're not going to be able to attract especially the young generation.