Are you ready to call this a Republican revolution?

REP NEWT GINGRICH: Well, I think it's the American people's revolution. I think that the Republican Party's going to have to listen to the American people and try to be responsive to what they've said.

CHRIS BURY (VO): By breakfast time, Senator Dole, soon to be Majority Leader Dole, was already laying down the law for the President whose party lost control of the Congress for the first time in 40 years.

SEN ROBERT DOLE, MINORITY LEADER: ('Today,' NBC News)

I think he needs to work with us. We are- I honestly felt we were locked out of the process many times in the past two years. Maybe it was inexperience at the White House, maybe it was something else.

CHRIS BURY (VO): From the White House lawn, just after 8:00, a bleary eyed chief of staff struggled to put a positive spin on the devastating results for his boss.

LEON PANETTA, WHITE HOUSE CHIEF OF STAFF: ('Good Morning America,' ABC News) Clearly, this was a sea change, in terms of what the public was doing, in saying that we want to give the Republicans the ability to run both the House and the Senate. There's no question about that. But, you know, there's some good news here, which is that the Republicans now have to assume some responsibility to help govern this country.

CHRIS BURY (VO): They could hardly wait.

SEN PHIL GRAMM, (R), TEXAS: Good morning. I want to thank all of you for getting up this morning.

CHRIS BURY (VO): By 9:00 AM, Senator Phil Gramm, who's planning a run for president, struck a combative chord.

SEN PHIL GRAMM: I believe that, starting today, the train is going to pull out of the station, and it is going to be a train that is bound for less government and more freedom. I think the question that the President has to answer, beginning today, is is he going to get on the train and be the engineer? Is he going to wave from the station or is he going to get on the tracks and try to stop the train?

CHRIS BURY (VO): Just a few minutes later, in Atlanta, the soon to be Speaker of the House was spelling out specifics for the new Republican Congress.

REP NEWT GINGRICH: Then, in the first 100 days, we will vote on the following 10 bills. One, balanced budget amendment and line item veto. Two, stop violent criminals. Three, welfare reform. Four, protect our kids. Five, tax cuts for families. Six, strong national defense. Seven, raise the senior citizens' earning limit. Eight, roll back government regulations. Nine, common sense legal reforms. Ten, congressional term limits.

SEN ROBERT DOLE: I think we need to do a little on GATT, too, I'd like-

CHRIS BURY (VO): At 9:30 AM, Senator Dole was on the horn with President Clinton, talking trade legislation and sounding somewhat agreeable, for the cameras, at least.

SEN ROBERT DOLE: We could try, but at least we- I think we have to try, and as I've said, we have responsibilities to you and certainly the American people.

CHRIS BURY (VO): Just two hours later, though, when it looked like the day couldn't get any bleaker for the Democrats, it did.

SEN RICHARD SHELBY, (R), ALABAMA: I am changing parties to a party of hope for America, not a party of dependency, to the Republican Party, effective immediately.

CHRIS BURY (VO): Senator Shelby, a Democrat who often voted with the Republicans anyway, officially crossed over in a PR bonanza orchestrated by the new Republican leadership.

SEN ROBERT DOLE: That now gives us 53 to 47. We'll be happy to accept other applications. Thank you very much.

CHRIS BURY (VO): At the very same moment, over at Democratic headquarters, the embattled and outgoing party chairman finally conceded the obvious. DAVID WILHELM Call it what you want, an earthquake, a tidal wave, a blowout, as we say in the Midwest, we got our butts kicked.

CHRIS BURY (VO): But like all the President's surrogates, today David Wilhelm tried to salvage something from last night's wreckage.

DAVID WILHELM: In the past 21 months, we have made a beginning. We've made progress. Sometimes it was done with bipartisan cooperation. All too often, we had to go it alone. But last night the voters said it's not enough, and they expect more.

RUSH LIMBAUGH: I think they're in total spin mode right now, as- as a means of putting the best face forward they can.

CHRIS BURY (VO): By the time he went on the air at noon, the President's radio nemesis, Rush Limbaugh, could barely contain his glee.

RUSH LIMBAUGH: I don't know about you, but I sure as heck-

CHRIS BURY (VO): This afternoon, as late results came in from close races on the West Coast, Democrats got their first genuine good news of the day. Senator Dianne Feinstein sounded optimistic about maintaining her thin margin over Republican Michael Huffington.

SEN DIANNE FEINSTEIN: I am optimistic that we are going to win this race, just simply because of the way the ballots spread, and the fact that as they're counted with this lead, I believe the lead is sufficient enough to- to win the race.

CHRIS BURY (VO): But that upbeat mood didn't lift Democratic spirits for very long.

REP THOMAS FOLEY: It appears to me that when all the votes are counted, we may fall a few votes short.

CHRIS BURY (VO): In Spokane, Representative Tom Foley conceded, the first Speaker of the House to lose his seat since 1860.

REP THOMAS FOLEY: And let me now congratulate George Nethercutt and to promise him the he coming two months of transition.

CHRIS BURY: For President Clinton and his party, it was hard to imagine a more desolate day in Washington, and no matter how his surrogates tried to spin the story, it was clear the President himself would somehow have to explain last night's disaster and his plans for digging the Democrats out.

TED KOPPEL: Later in the afternoon, the President faced the press, and the Republican leadership offered a glimpse of its agenda, coming up in part two of Chris Bury's report.

(Commercial break)

CHRIS BURY (VO): The White House had scheduled a full blown presidential press conference for 2:30 this afternoon, but minutes before, word came the news conference would be delayed. At that hour, in his New York City studio, an ecstatic Rush Limbaugh was still reveling in the Republican sweep of Congress, and raving at the President.

RUSH LIMBAUGH: This is one of the most profound days in American history. One man has brought the Democratic Party to its lowest in who knows how many years.

CHRIS BURY (VO): Meanwhile, across town, Republican Senator Al D'Amato, perhaps the President's most bitter foe in Congress, announced he planned to reopen the Whitewater investigation. As new chairman of the Senate Banking Committee, D'Amato will soon have the authority to subpoena witnesses that he lacked as a minority senator.

SEN ALFONSE D'AMATO: We really weren't able to ask the questions of the witnesses that we wanted. We weren't able to get the facts. And I think people are tired of it, they want the facts, they're entitled to it, and we're going to get to the bottom of this.

WHITE HOUSE OFFICIAL: Ladies and gentlemen, the President of the United States.

CHRIS BURY (VO): A full hour behind schedule, a solemn looking President Clinton finally appeared before reporters. The President conceded his policies, at least, were partially to blame for last night's historic losses in Congress.

PRES BILL CLINTON: I am the leader of the efforts that we have made in the last two years, and to whatever extent that we didn't do what the people wanted us to do, or they were not aware of what we had done, I must certainly bear my share of responsibility, and I accept that.

CHRIS BURY (VO): The President had little choice but to reach out to the new Republican powers, but even as he did, Mr Clinton laid down a marker of his own.

PRES BILL CLINTON: But to those who would use this election to turn us back, let me say this. I will do all in my power to keep anyone from jeopardizing this economic recovery by taking us back to the policies that failed us before.

CHRIS BURY (VO): The President, almost sounding Republican himself at times, pointed to possible compromise with Congress on trade, welfare and paring down the government. But he still insisted voters had not rejected the basic direction of his presidency.

PRES BILL CLINTON: I do not believe they voted for reversals of economic policy or the positions on crime. I don't think they voted for a reversal of the Brady bill or the military assault weapons ban. I don't believe that.

BRIT HUME, ABC NEWS: Mr President, did you mean to say here, sir, that the message the voters sent yesterday was basically an extension of the demand for change they made when you were elected in '92, and that- that you've been going in the right direction, but perhaps need to go farther and faster with essentially the same agenda?

PRES BILL CLINTON: I think they were saying two things to me. Or maybe three. They were saying- let me - maybe 300. I think they were saying, 'Look, we just don't like what we see when we watch Washington, and you haven't done much about that.'

CHRIS BURY (VO): Tonight, that tilt on the story dominated the network news, and even Newt Gingrich, who, just two weeks ago called President Clinton 'the enemy of normal Americans,' managed some rare sympathy for the President's plight.

REP NEWT GINGRICH: I think we ought to make a serious effort now at seeing if we can find a way to work together, and I thought the President was admirable in the press conference.

CHRIS BURY (VO): But a few hours later, at Gingrich headquarters, his supporters were still celebrating the Republican romp. Back in Washington, the usual Democratic watering holes on Capitol Hill were all but deserted tonight.

WASHINGTON, DC RESIDENT: Pretty somber mood. I think a lot of people are going to be without jobs in a couple of weeks, a couple of months, certainly, and you can't ignore the fact that no Republican incumbent lost and there was a great turnover of Democratic seats. It's a clear signal.

CHRIS BURY: Tonight, the President and his party are still trying to understand exactly what that signal meant, and where to go from here. For now, the White House is only talking about tactical changes designed to get President Clinton's message heard more clearly. This evening, an adviser to the President told us the basic Clinton principles will not change. This is Chris Bury for Nightline, in Washington.

TED KOPPEL: When we come back, a conversation with one of the people most responsible for figuring out a way to make the best of what's been left behind for the President, White House chief of staff Leon Panetta.

(Commercial break)

TED KOPPEL: In contrast to the Republican celebration, the White House was a subdued place tonight. At the end of the day, I talked with the President's chief of staff, Leon Panetta. He told me that they had prepared the President for the worst

LEON PANETTA, WHITE HOUSE CHIEF OF STAFF: About three weeks ago, I think, we could begin to see some of the writing on the wall, and there began to be an effort to come back at it, to go after the Republican contract, and the President's foreign policy successes picked up some steam, so he felt that there was some momentum going for us. And then in the weekend it kind of slowed down, and I think by the time we got to the election eve, he himself began to recognize that there was a wave going on out there that was going to be difficult to stop, so I think, to a large extent, he had pretty much preconditioned himself to what was going to happen. Obviously, it was still a shock that we lost as many seats as we did. We thought we, at least, would wind up holding the House, but that didn't happen, and to that extent, it was a surprise to him, and a disappointment.

TED KOPPEL: Not only didn't happen, I mean, holding the House would have meant keeping it down to 39 seats at maximum-

LEON PANETTA: That's right.

TED KOPPEL: -and here you are 13 seats off, 52.

LEON PANETTA: Exactly. That was- there was no question that there was a wave going on out there that- I think, probably, the one thing, on Monday, Monday evening, he came back from the campaign trips, and he'd been all over the country, and he was asking himself, 'Well, did we- did we use the right message, did we say the right thing, did we use the right ads, did we- you know, was I saying the right thing?' And he was beginning to ask himself that question. And I said- you know, I said, 'Look,' when Tuesday came, I said, 'If you had any second thoughts about your message, the reality is that this wave had started a long time ago, and there was very little you could do to reverse it.

TED KOPPEL: There has to be a little bit of second guessing along the lines that you're talking about there.

LEON PANETTA: Sure. Sure.

TED KOPPEL: Was it a good idea, after all, to go to the Middle East just a couple of weeks before the election? Might it have made a difference? Did you- you chew any of that over?

LEON PANETTA: I mean, actually, that chewing started before he even went on the trip, because there were some that felt, within the White House, that it was important for him to stay here because of the politics of, you know, getting out on the campaign trail and not doing that. On the other hand, the President felt very strongly that this was an invitation to a very important event that the United States had played a large role in, and that it would be wrong for him not to be there at that moment, particularly if we want to keep pushing for broader Middle East settlements in that area. I think, in looking at it in retrospect, the Middle East trip, the significant events that happened there ... it added to the other foreign policy successes, and I think presented him as the kind of leader on foreign policy that was important, in terms of this country as well.

TED KOPPEL: It makes you wonder what the vote would have been if he hadn't gone?

LEON PANETTA: Sure. I think that's the way-

TED KOPPEL: You figure it would have been worse?

LEON PANETTA: -that's the way, I mean, I look at it.

TED KOPPEL: Really.

LEON PANETTA: I think it was a combination of, you know, the strong leadership on foreign policy, and when he came back he added the domestic policy pitch, but I think the combination of the foreign policy achievements in Haiti and Iraq and North Korea, and then with the Middle East, I think it did, in fact, increase his poll standings. As a matter of fact, going into the election, he had broken 50 with regardshat's the way, I mean, I look at it.

TED KOPPEL: Really.

LEON PANETTA: I think it was a combination of, you know, the strong leadership on foreign policy, and when he came back he added the domestic policy pitch, but I think the combination of the foreign policy achievements in Haiti and Iraq and North Korea, and then with the Middle East, I think it did, in fact, increase his poll standings. As a matter of fact, going into the election, he had broken 50 with regards to his poll standings. So it's pretty clear that it was a plus.

TED KOPPEL: We live in an era, Mr Panetta, as you well know, when perception is more important, sometimes, even than reality, and so there had to be a number of discussions here in the White House last night and this morning before the President went out to do his news conference, to say, 'How much- how much blame do I take? How do we- how do we play it? How much credit do we give the Republicans?' Can you sort of take us- you've done this for us in the past To the degree that you can, can you take us behind the scenes and- and let us know what the- what the thinking is, how- how something like that is done?

LEON PANETTA: Well, the first thing, Ted, is that you don't do it after the election, and you don't even do it the night before the election. You really have to start this process almost two weeks out to really begin to analyze where you want to be when something like this happens, in terms of the election. And what we did here is basically ran several scenarios. If, in fact, we held the House and the Senate, what would that scenario be like the day after the election? If we lost one of the houses, either the House of Representatives or the Senate, what would that be like? And if we lost both, and if it were a blowout, what would we do? And so you ran several scenarios as to how the President should react under each of those situations, so that when you came to that point, you're prepared to at least move with one of those scenarios and present the talking points to the President, and see if he feels comfortable with those when it happens. Obviously, the blowout strategy was the one we had to- to present to the President.

TED KOPPEL: Inevitably, it ends up being a personal rejection. I mean, every- every human being has to feel- every congressman who's lost a race-

LEON PANETTA: Yes. Yes.

TED KOPPEL: -yesterday has to go home and say, 'Why do they hate me?'

LEON PANETTA: 'Why me?'

TED KOPPEL: Right.

LEON PANETTA: 'Why me?'

TED KOPPEL: 'Why couldn't they-'- I mean, Lord knows, you've been-

LEON PANETTA: I've been through this.

TED KOPPEL: -you've been through it. Have you ever lost one?

LEON PANETTA: No. Thank God, I didn't have to go through that. But you- but I know what it's like, just in the colleagues that I've seen take that hit.

TED KOPPEL: How do you? I mean, how do you, when so many people around the country are saying to you, in a sense, directly or indirectly, 'This is a rebuke, this is a rejection, this is a major league wake up call that says, 'We don't think you've been doing it right.'

LEON PANETTA: I think it's one of the great things about our system, that the American people have the ability to kind of express their anger and their frustration, their fears and their hopes, in the election process. And you know, it's what replaces revolution in this country, is the ability of people to go to the polls and send that kind of message. And I think people who have been in politics, like the President, understand what that message is about, that they have every right to express themselves that way, and what you have to do is listen to that message and basically let them know that you're hearing what they're saying. He's- he heard that message in Arkansas a few times, and he's now heard that message here, and the great strength he has is to be able to listen and to adjust and try to move on, and that really is what this country is all about. I think there's a great resiliency to the electoral process. You let people say what they want, you let them express themselves, but ultimately you have to move on and solve problems.

TED KOPPEL: Boy, if this replaces revolution, you don't want to see the real thing, do you?

LEON PANETTA: I think that's for sure. There are times when the French Revolution doesn't look too bad.

TED KOPPEL: Thanks very much.

(Commercial break)

TED KOPPEL: Tomorrow on World News Tonight, Peter Jennings investigates the controversy surrounding the Vietnam Memorial and the group which helped raise the money to build it. That's tomorrow on this ABC station. And that's our report for tonight. I'm Ted Koppel in Washington. For all of us here at ABC News, good night.