Rice, President George W Bush's nominee for the post, was testifying before the Senate Foreign Relations Committee chaired by Republican Senator Richard Lugar at her confirmation hearing in Washington Tuesday.
She also revealed that the US has a contingency plan to prevent Pakistani nuclear weapons from falling into the hands of Islamic fundamentalists if they had come to power.
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To a question by former Democratic Presidential candidate Senator John Kerry, she said Pakistan has come a long way since two and a half years when it was on the brink of coming under the sway of fundamentalists with its ties to the Taliban and thorough penetration by al Qaeda.
"Now, Pakistan is fighting the al Qaeda".
Citing the speech Musharraf made after the attack on the Indian Parliament, she described it as "one of the top ten speeches any leader has given in recent years."
In the speech, Musharraf had said extremism and modernism cannot co-exist side by side in Pakistan, and "that gave rise to very promising developments... in South Asia as India and Pakistan start feeling (their way) towards a better future."
"In part, that has been made possible by Pakistan's unwillingness to be associated with extremism and (decision to move towards better relations with) Indian democracy, and that was a very healthy side of developments there--small steps still and so fragile," she said.
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Asked whether the US has devised any "fail safe" method to ensure that if something were to happen to Musharraf and the Pakistani nuclear weapons would not fall into the hands of a radical Islamic State, Rice said "We are prepared to try to deal with it. I would prefer not to talk about this particular issue in open session."
Pressed on the issue by Kerry, she said: "We are very aware of the problem. In fact, we have had some discussions on it. I prefer not to (discuss it in open session). "Pakistan's role from supporting extremists like al Qaeda and Taliban to fighting the al Qaeda and the extremists is a huge historical change," she said.
The US, she said, has made great strides in denying the terrorists' territory controlled by them or was friendly to them.
"The al Qaeda used Afghanistan under the Taliban as its home base. That is no longer so. Pakistan which used to be a strong supporter of the Taliban and was not aggressive against al Qaeda but now it has changed its policy.
"The al Qaeda can no longer count on not being pursued in the Federally Administered Tribal Areas which had never been governed by Pakistan. Now that territory is denied to them".
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Rice said the US at this point has a good working relationship with Pakistan and is getting "the information that we need" from Pakistan's Government on the information it has obtained from disgraced scientist A.Q. Khan on nuclear proliferation.
"I don't know what we will need to ask in the future," she said, "but at this point we have a good working relationship with Pakistan on this."
In a prepared statement, Rice said "we have moved beyond the false assumption that it is impossible to have good relations with all of Asia's powers.
"Our Asian alliances have never been stronger--and we will use that strength to help secure the peace and prosperity of the region ....The United States is cooperating with India, the world's largest democracy, across a range of economic and security issues. This, even as we embrace Pakistan as a vital ally in the war on terror, and a state in transition towards a more moderate and democratic future," she said.
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Indicating that the US was still studying the proposals for reform of the UN Security Council, Rice said she would not say which countries should be given permanent seats.
Senator Lugar in his opening remarks called upon the US to engage with "rapidly changing national powers, especially China, India and Russia."
Senator Chuck Hagel said:"America's relationships with Russia, China and India will shape international politics, commerce and security in the coming decades. These are powerful states undergoing dramatic and historic changes.
"Our bilateral relations with Russia, China and India will require a delicate diplomatic balance of security and commercial interests as well as support for reform and human rights," he added.
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