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O'REILLY: Thanks for staying with us. I'm Bill O'Reilly.

In the "Personal Story" segment tonight, the continuing problems of University South Florida Professor Sami al-Arian. THE FACTOR has been linked al-Arian with a fundraising letter for Palestinian terrorists. And the professor may be dismissed by USF.

In addition to that, he's now being sued by John Loftus, a former federal prosecutor. Mr. Loftus joins us from Tampa. And also from that city is professor al-Arian's attorney, Robert Mckee.

All right, Mr. Loftus, why are you suing Professor al-Arian? What have you got on him?

JOHN LOFTUS, SUING SAMI AL-ARIAN: My clients in the intelligence community said that money was being laundered through Saudi charities in Virginia to Florida charities run by Sami al-Arian, and then transmitted to terrorist groups in the Middle East.

O'REILLY: What kind of proof do you have?

LOFTUS: There's actually quite a bit of proof. Some of it depends on secret information. Do you remember the famous case of secret evidence against Mazan Amajer (ph), who was being held for deportation?

O'REILLY: Vaguely.

LOFTUS: Well, this was a guy who was held for deportation. The Justice Department, my sources said that they were ordered not to prosecute Sami, but they could use Sami's evidence to throw the rest of his network out of the country. If you take -- this is a public document available in a Bradenton courthouse.

O'REILLY: OK, but I want to know what evidence you have...

LOFTUS: Right here.

O'REILLY: ...that you say that Professor al-Arian raised money, and then sent it over to Saudi Arabia, who then sent it to terrorist organizations. What have you got?

LOFTUS: OK. We have al-Arian's own videotapes, where he's raising money. He's standing in front of a terrorist poster for the Palestinian Islamic Jihad. He's raising money. His spokesman get up and say, "Who will give me $500 to kill a Jew?" That's how blatant this stuff is.

O'REILLY: Do you have a tape with him saying that?

LOFTUS: Yeah, I have the English language transcript. The tapes were played for the press in this other case.

O'REILLY: But do you have that tape? Can we have it and show it tomorrow on this program?

LOFTUS: I don't have the tape, but I can tell you how to get it under the Freedom of Information Act. I just have the English language transcripts. I don't speak it.

O'REILLY: All right, so the government has the tape, you allege.

LOFTUS: Oh, no, it's a public document.

O'REILLY: Well who are has the tape? Who has the physical tape?

LOFTUS: It's in the Bradenton courthouse.

O'REILLY: That's the government, all right. Well, we'll look into it and try to get it.

Now counselor, how do you reply to this?

ROBERT MCKEE, LAWYER FOR SAMI AL-ARIAN: Well, obviously, Mr. Loftus has an agenda. And unfortunately, he's chosen to misuse the legal process to advance his agenda. The lawsuit itself is frivolous. It will be dismissed in due course. And hopefully, you'll have us back on here to give the dismissal of the lawsuit.

O'REILLY: Oh listen, well you're welcome any time and so is your client. But when you say it's frivolous, are you denying that Professor al-Arian ever tried to raise money for terrorists?

MCKEE: Yes.

O'REILLY: You are?

MCKEE: Yes.

O'REILLY: All right. Now I have a letter here written by the Professor al-Arian in 1995, where he says to a Kuwaiti, "Please give money for Hamas and Islamic Jihad of Palestine."

MCKEE: Yeah, the letter you're...

O'REILLY: Come on. This is a letter that he wrote in 1995. How can you deny he's trying to raise money for terrorists?

MCKEE: I am familiar with the letter. The letter you're referring to was a private communication.

O'REILLY: Doesn't matter.

MCKEE: That was never sent. It was never sent.

O'REILLY: Oh, it was never sent.

MCKEE: It was never sent.

O'REILLY: Well, why did he write it?

MCKEE: It was seized from Dr. al-Arian during a raid of his residence.

O'REILLY: Why did he write it, counselor?

MCKEE: Dr. al-Arian's view was that his individual asked him is it a good idea for me to give money. And Dr. al-Arian said yeah, give money, if that's what you want.

O'REILLY: Oh come on. This is a detailed letter saying that the suicide bombers are martyrs, that we have to support their families, we got to send money over there. Come on, counselor. How can you deny he's raising money for terrorists when there's something like this in my possession?

MCKEE: Dr. al-Arian denies that he raised money for terrorists.

O'REILLY: I don't care what Dr. al-Arian denies. I got the proof that that's bogus.

MCKEE: You can read the letter however you want to.

O'REILLY: Oh, stop.

MCKEE: It was a First Amendment protect the communication that was actually never sent.

O'REILLY: All right. Well, I don't know if it was sent or not, but I got it. And there's no question here that he tries to raise money. Mr. Loftus, what are you going to do now?

LOFTUS: Oh, Bill, we're going to have a little fun. See, Sami's get- out-of-jail-free card was that he knew the money was coming from the Saudi government. And the prosecution of Sami was shut down, so as not to embarrass the Saudis.

What I did was I told the CIA and the Justice Department back on March 11, I'm going to give you a deadline or I'm going to expose the entire case. Now the night before I filed the case, the Justice Department asked me to give him a few more hours, because they were going to go ahead with the raids.

So I warned the press on Wednesday morning. They had to embargo the stuff about the Saudi charities. And sure enough, that afternoon, they were raided. The federal government's search warrant searched for information linking Sami al-Arian to the Saudi government network, exactly as I said.

O'REILLY: All right, now let me get this straight now. You believe that Sami al-Arian was raising money for terrorist groups...

LOFTUS: Yes.

O'REILLY: ...but funneling it through the Saudi government?

LOFTUS: No, other way around. The Saudis funneled money through Sami.

O'REILLY: The Saudis gave money to Sami, who passed it on to Hamas and Jihad?

LOFTUS: Correct.

O'REILLY: All right, that's what you believe?

LOFTUS: That's what I know as a fact.

O'REILLY: All right. And you think you can prove that?

LOFTUS: Sure.

O'REILLY: OK, now and you believe that he wasn't busted by the Justice Department because they didn't want to embarrass the kingdom of Saudi Arabia?

LOFTUS: Correct. That's why they blacked Sami's name out of all these other documents, so that people wouldn't know the secret evidence that was used to throw Mazan al-Najjar (ph) in prison all came from Sami's home.

O'REILLY: Is Sami an informer or were they just tapping his line?

LOFTUS: No, they raided his home.

O'REILLY: OK, they got this information from the raid.

LOFTUS: Yeah.

O'REILLY: But why would they protect Sami if -- the only thing that makes sense to me is not embarrassing the Saudi government. That's the only thing.

LOFTUS: That's the only explanation. And that's why I finally forced the government to raid the Saudi charities and seize the records. That was the last link of evidence needed.

O'REILLY: All right. To be fair now, I'm going to give counselor McKee the last word here. And you can say whatever you want, counselor. Go right ahead.

MCKEE:: Thank you, Bill. Anybody can make allegations in this country about anybody else and abuse the legal process simply by paying $150 to the court clerk to file a lawsuit. These are allegations, as wild as they are, they're nothing but allegations.

The facts are that Dr. al-Arian was investigated by the FBI back in the mid '90's. He was the subject of a grand jury investigation back in the mid '90's. He was investigated by a special counsel from the University of South Florida back in the mid '90's. All of the evidence, so-called evidence against Dr. al-Arian was aired before an INS federal judge. Dr. al-Arian's never been charged with a crime.

O'REILLY: All right, counselor. We'll see how this goes. And Mr. Loftus, please keep us posted on the lawsuit. Very interesting case as always. And we thank you, gentlemen, for coming on THE FACTOR.

LOFTUS: There's a lot more to come.

O'REILLY: All right. And when we come back from D.C., once again, the French causing controversy in America. This time they are threatening not to help the U.S. in the war on terror if a terrorist is threatened with the death penalty. Wait until you hear this story. We'll be right back from D.C. after these announcements.

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