This is a rush transcript from "Hannity," January 4, 2012. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: While Mitt Romney clinched the victory in Iowa, some are arguing that the real winner last night was Rick Santorum, who surged to second place with just eight votes less than the former Massachusetts governor. Now, Senator Santorum had a clear message for the GOP frontrunner following the caucuses. Let's take a look.

(BEGIN VIDEO CLIP)

RICK SANTORUM, R-PRESIDENTIAL CANDIDATE: Game on!

(CHEERS AND APPLAUSE)

(END VIDEO CLIP)

HANNITY: After his fifth place finish, Rick Perry announced that he'd headed back to the Lone Star State.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY, R-TEXAS: I've decided to return to Texas, assess the results of tonight's caucus, determine whether there is a path forward for myself in this race.

(END VIDEO CLIP)

HANNITY: But not for long. This morning, the Texas governor tweeted that he is still in the running, writing, quote, "And the next leg of the marathon is the Palmetto State, here, welcome, South Carolina." (ph)

Now, taking a not-so-temporary break from the trail is Minnesota Congresswoman Michele Bachmann, who after coming in sixth place last night, officially ended her presidential bid this morning.

(BEGIN VIDEO CLIP)

REP. MICHELE BACHMANN, R-MINN.: Last night, the people of Iowa spoke with a very clear voice. And so I have decided to stand aside.

(END VIDEO CLIP)

HANNITY: And joining me now with reaction to all of this is FoxNews contributor, former Alaska Governor Sarah Palin. Governor, how are you? Good to see you.

SARAH PALIN, FOX NEWS CONTRIBUTOR: I'm doing great, Sean. Thank you.

HANNITY: All right. Well, let's first get your thoughts. I know because I was emailing you a little bit during the night last night. I was glued to Fox coverage. You were watching the coverage. And your thoughts generally about the primary, the caucus last night in Iowa?

PALIN: It was such an exciting night. And if not predictable, for some of us, which I predicted much of that last night. I felt that it kind of felt like it was as it should be at this point in the race with the finishes, strong finishes, great speeches by all the candidates afterwards. I think the speeches really foretold what we have to look forward to with, for instance, Gingrich saying, you know, he basically learned a lesson, you can't win a ballgame being on defense the whole time. And after facing, what was it, about $17 million in negative ads in Iowa, he's going on offense and he's going to defend his truth, his record and his intentions and how he wants to lead the country.

Santorum's speech too, very powerful, very sincere and heartfelt. And you know, he spoke to the working class. And I think he left Americans with a sense of real optimism for working-class, Reagan Democrats and the GOP and independents to know that it will be GOP policies that can turn this thing around and get our economy back on the right track. His speech was so good, he even kicked it off with my favorite C.S. Lewis and a good quote there about freedom and about, you know, what we feel in our heart and how we manifest that and Santorum had a strong showing last night and he has a lot to be proud of.

HANNITY: I agree with you. I think it's a tribute to his hard work, perseverance, his skills as a politician. He hung in there with a lot of retail politics. He went to town hall meetings where only one person would show up and spend time with that one person. But he also had good timing. Why do you think it was so late in the game for him to surge? Why was that -- as the Gallup poll showed, why is this the most volatile primary for the GOP in the history of polling since the advent of polling?

PALIN: Well, there in Iowa, it was a good place for Santorum to be and to rise to the top. And even though he was 8 votes short, I think most people would say that he was the one who rose to the top because for many, it was unexpected, his finish. But Iowa there, I believe is a microcosm of America when you consider median income, when you consider education levels, I think that Iowa really represents much of America and the voters who are going to show up in a general election. So you know, a very good showing there for Santorum. Very strong. I think and again, in his speech, he articulated what it is that he intends to do for the working class. I think that would lead most people to believe that we can be optimistic about this, still, going forward in the primary and then, eventually, finding that person to face Obama and the failed policies that Obama has done to this country, that got us on the wrong track.

HANNITY: Now, Rick Santorum is not a rookie. He is, I think a very strong conviction, politician. I think he really stands on his principles, whether it hurts him in the polls or not. And I always view that as a strength. But the difficulty now for him is, can he withstand the scrutiny that came to Rick Perry and Michele Bachmann and Herman Cain -- who is going to join us later -- and Newt Gingrich? How do you think he's going to be able to handle all of that because you know it's coming and I think he knows it's coming.

PALIN: You know it's coming because it's happened over these months to all of those numerous candidates that you have just mentioned. But even more so, my concern is for the GOP candidate who wins this primary, as they go forward to face the Obama presidential ticket machine and really the thuggery that is involved in that. That's where my concern is.

And I believe -- let me change the subject just a little bit here -- I believe that Senator McCain today in his endorsement of Mitt Romney, Senator McCain and I, we are the only ones in America who ever had to face that Obama presidential ticket machine and all that it encompassed. And what it encompassed really was, you know, this unscrupulous, gimmicky scheme that it was. And Senator McCain, evidently has chosen Mitt Romney as the one to be the most prepared to face this thuggery, this scheme that he is going to have to face, someone's going to have to.

HANNITY: Well, it could be a very different though because this time, he can't run on his record. Last time, you know, there was a lot of rhetoric and prompter reading and hope and change and bumper stickers. Why do you think, because all throughout this process, since the very beginning, Governor Romney's had a hard time, breaking that 25 percent ceiling and inspiring conservative voters. Why do you think he's struggling in that area?

PALIN: Because in the past, his positions haven't always been conservative positions. I mean, he still defends to this day that mandate that constituents would have to buy Healthcare. And you know, as he did in Massachusetts, he said he wouldn't do that nationally, but he did do that in a state and that rubs people wrong because the majority of Americans understand how onerous and burdensome and job-killing Obamacare is and, you know, the prototype for Obamacare evidently was Romneycare, so that's a problem there. But where people are keeping an open mind today and where you see the support that Romney does have, the people who are believing that Romney is saying, well, some of the positions that he's taken in the past, he has done a 180 on it. Now he truly is as he preaches, prolife. Now, he truly does believe in reducing taxes and the barriers to the working class as we try to progress without the government doing it for us --

HANNITY: Let me --

PALIN: So positions have changed in Romney's camp, as he espouses today.

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