After maintaining a relentless optimism in the face of ominous polls, Karl Rove tells TIME why Republicans wound up taking a bath on Election Night.

BY MIKE ALLEN/WASHINGTON

At the White House senior staff meeting in the Roosevelt Room at 7:30 a.m. on Wednesday, Chief of Staff Josh Bolten thanked Karl Rove for his hard work in the elections, and the group around the big table burst into spontaneous applause. It was a much-needed moment of cheer for Rove, the President's chief strategist, after Republicans lost the House and were headed toward the same fate in the Senate in midterm congressional elections that turned into a blue rip tide of voter ire.

"The profile of corruption in the exit polls was bigger than I'd expected," Rove tells TIME. "Abramoff, lobbying, Foley and Haggard [the disgraced evangelical leader] added to the general distaste that people have for all things Washington, and it just reached critical mass."

Exit polls showed heavy discontent with the course of the war, and Bush announced the departure of Defense Secretary Donald Rumsfeld the next day. But Rove took comfort in results of the Connecticut Senate race between the anti-war Democratic nominee, Ned Lamont, and Sen. Joseph Lieberman, who ran as an independent after losing the Democratic primary over his support for the war. "Iraq mattered," Rove says. "But it was more frustration than it was an explicit call for withdrawal. If this was a get-out-now call for withdrawal, then Lamont would not have been beaten by Lieberman. Iraq does play a role, but not the critical, central role."

And he does not believe his data let him down. "My job is not to be a prognosticator," he said. "My job is not to go out there and wring my hands and say, 'We're going to lose.' I'm looking at the data and seeing if I can figure out, Where can we be? I told the President, 'I don't know where this is going to end up. But I see our way clear to Republican control.' "

Rove, who is Deputy Chief of Staff and Senior Adviser to the President, had long been warning in speeches that Democrats suffered defeat in 1994 after ossified thinking and an entitlement mentality took over the party: "What I was trying to say was: What happened to them could happen to us," he told TIME.

White House Counselor Dan Bartlett said Bush is "deeply appreciative for the time and effort put in by Karl, and for all the political team's effort." Bartlett pointed to the President's statement at his day-after news conference that as the head of the Republican Party, he shares a large part of the responsibility. "He's not the one that's going to sit there and point fingers at others," Bartlett said.

Despite this week's repudiation of the GOP, Rove said he believes the party can still achieve a long-term majority. "I see this as much more of a transient, passing thing," he said. "The Republican Party remains at its core a small-government, low-tax, limit-spending, traditional-values, strong-defense party. I see the power of the ideas, even in a tough year." He added that he has "fundamental confidence in the power of the underlying agenda of this President," and cited fighting the war on terror, entitlement reform, energy, tax cuts, immigration reform, No Child Left Behind reauthorization, democracy agenda in the Middle East, reducing trade barriers, spending restraint and legal reform.

Rove is famous for his political statistics, and his team has come up with an array of figures to contend that the Republicans' loss of 29 seats in the House and six in the Senate is not so out of whack with the historic norms. In all sixth year midterms, the President's party has lost an average of 29 House seats and 3 Senate seats, according to these figures. In all sixth-year midterms since World War II, the loss was an average of 31 House and 6 Senate seats. And in all wartime midterms since 1860, the average loss was 32 House and 5 Senate seat.

The Republican get-out-the-vote program Rove helped invent precluded even deeper losses, he says. "People were talking 35, 40 or more and it didn't happen," he said. "There were a number of elections which were supposed to be close and ended up not being close."

The Republican National Committee has been pointing out that a small shift in votes would have made a big difference. A shift of 77,611 votes would have given Republicans control of the House, according to Bush's political team. And a shift of 2,847 votes in Montana, or 7,217 votes in Virginia, or 41,537 votes in Missouri would have given a Republicans control of the Senate. In addition, the party has calculated that the winner received 51 percent or less in 35 contests, and that 23 races were decided by two percentage points or fewer, 18 races were decided by fewer than 5,000 votes, 15 races were decided by fewer than 4,000 votes, 10 races were decided by fewer than 3,000 votes, eight were decided by fewer than 2,000 votes and five races were decided by fewer than 1,000 votes.

Rove is an enthusiastic historian, but even he has trouble coming up with a parallel for this wild week. "We may look back and see this as a unique expression," he said. Republicans can only hope.

Exclusive: The Speaker bows out of the Republican leadership after Democrats take his power. The contest to succeed him will help define the Republican Party in a new era of divided government.

MIKE ALLEN/WASHINGTON

House Speaker Dennis Hastert (R-Ill.) will not seek reelection to the Republican leadership when his members return as a minority party after taking heavy losses in Tuesday's elections, a Republican official tells TIME. Hastert, 64, a low-key former high school wrestling coach, was beloved by members as a "good cop," compared to the enforcer style of the longtime number two leader, former Rep. Tom Delay (R-Tex.). But Hastert was badly damaged by questions about how much he had known about former Rep. Mark Foley (R-Fla.) and his contact with pages, and members felt Hastert also handled the aftermath of the revelations clumsily.

The battle to succeed him will be bruising, as members attempt to allocate blame for the Foley mess. Among those seeking to replace him at the top of the House leadership, which will now be the minority leader, are House Majority Leader John Boehner (R-Ohio), now second in the House leadership, and Rep. Mike Pence (R-Ind.), chairman of the House conservative caucus, the Republican Study Committee. Other possible candidates are Rep. Eric Cantor (R-Va.), now chief deputy whip and one of the most popular and hard-working members of the leadership, and Rep. Joe Barton (R-Tex.), now chairman of Energy and Committee.

The Speaker plans to announce his departure this week and perhaps as soon as today, officials said. Leadership elections are scheduled for next Wednesday but are likely to be pushed back to closer to the deadline under party rules, which is Dec. 20.

Hastert had long planned not to seek reelection to his House seat in 2008. His officials biography says he is the first Republican Speaker in more than a century and one of only two Republicans to preside over consecutive electoral seat gains in the U.S House of Representatives, and is also one of two Republicans to be reelected Speaker for four consecutive terms.

Despite his dramatically weakened political position, the President plans to stand up to Democrats and challenge them to work with him on issues he has been promoting. But the opposition now has little reason to cave.

BY MIKE ALLEN/ WASHINGTON

President George W. Bush plans to respond to last night's Republican wipeout with a combination of conciliation and firmness that is unlikely to pacify an empowered and emboldened opposition. Aides say that beginning with an appearance in the East Room this afternoon, Bush will try to cast the blue wave as an opportunity rather than a defeat, and will vow to plunge ahead with transformative goals like reworking the Social Security system for fiscal longevity. "The same group of problems are there," White House Press Secretary Tony Snow tells TIME. "You just will have some different people in the leadership. We have an opportunity to have an activist last two years of this Presidency, which will be good for the country." Snow, who worked conservative talk radio for three hours yesterday afternoon, said Democrats now "have to decide whether they're going to be part of the solution, or are going to try to shut down the government for two years and point fingers at the President."

Snow said the President plans "an up-front focus on issues where we can get things done and on matters of significant shared interest, if not agreement." When Bush was Texas Governor and running for President back in 2000, supporters often pointed to his jocular and productive relations with Democrats in the legislature as signs that he could be what the campaign called "a uniter, not a divider."

The President hit the phones in the Oval Office at 7 a.m. and called a string of Democratic and Republican congressional leaders. On Thursday, he is scheduled to have lunch with House Democratic leaders and he'll do the same on Friday with Senate Democratic leaders. Snow said the President's mood "is one where he sees an opportunity to get a lot of things done."

"The accurate model for this White House will be the Texas experience, where he worked effectively with Democrats, to their mutual benefit," Snow said. But officials in both parties say that will be awfully hard to replicate in this atmosphere. Despite the President's planned lunch with incoming Speaker Nancy Pelosi, a broad charm offensive by White House officials is unlikely. "They're not in the mood for it, and they don't think it would work," said one close adviser, although others insisted Bush will give it a try.

One move that could buy the President good will with the Hill and the public would be the departure of Defense Secretary Donald Rumsfeld, and many people close to Bush hope that happens sooner rather than later. "He has screwed the President," said a loyal member of the Bush team who rarely speaks so bluntly. The President said when asked last week that Rumsfeld would serve the rest of the term, but officials say Bush really could not have said anything else, and that is in no way a guarantee that Rumsfeld will still be running the Pentagon at noon on Jan. 20, 2009, when Bush's successor takes office.

Advisers expect a battle royale over the balance of powers if Democrats use their new subpoena power to try to conduct what the White House is already calling "witch hunts." Bush and Vice President Cheney have made the expansion of executive power one of their hallmarks, and advisers say they do not plan to give up any of the ground they have won without a fight all the way to the Supreme Court. "We're going to have a fierce constitutional showdown over the boundaries of power between the executive and legislative branches," one adviser said. "The executive usually wins those battles, so we think we'll consolidate our gains."

The President stayed up until after 11 p.m., long past his usual bedtime, to watch as Republican dominion over Washington fractured and slipped away on a tide of voter anger about Iraq and dissatisfaction with the direction of the country. Both he and his inner circle had been publicly buoyant to the end, and aides had said the boss planned to make "lots" of congratulatory phone calls. Instead, he wound up talking to Rep. Tom Reynolds (R-N.Y.), who barely kept his seat after taking some of the blame for the House leadership's handling of the page scandal. Reynolds was also chairman of the National Republican Congressional Committee, presiding over the party's return to the minority after 12 years in control of the House. By breakfast time today, Democrats had picked up 27 seats, and no Democratic incumbent had lost. Some Republican officials say they have little hope of retaining control of the Senate, which would require victories in the undecided Montana and Virginia races.

With the returns much worse than most in the White House had expected, officials revised their description of the internal mood. As it became clear in recent weeks that the House was probably lost, officials privately said they were "realistic." Last night, they said, the atmosphere was "businesslike." If the President can extend that to the Capitol, he will have delivered, six years later, on his campaign promise to unite rather than divide.