In his first two years in the splendid misery of the American Presidency, the job must have seemed more misery than splendor to Bill Clinton. Over the past 12 months, though, the nation's 42nd President has staged a political transformation that is nothing short of remarkable. The 49-year-old Chief Executive has helped broker peace agreements in Bosnia, Northern Ireland and the Middle East while rallying public support at home in his budget battles with House Speaker Newt Gingrich, just one year after his party suffered the worst election debacle in decades—when Republicans wrested control of both the House and Senate from his Democratic grip—Clinton seems fit, focused and, finally, presidential. His approval ratings, meanwhile, have shot up to 55 percent, among his highest numbers since taking office three years ago.

Up since dawn on the crisp morning of Dec. 7, Clinton had already breezed through a 5-km jog with the U.S. women's basketball team ("they were very impressive") and dispatched campaign aides to New Hampshire (First Lady Hillary Rodham Clinton would join them the next day) to file his papers for the state's February primary. At mid-morning the President seemed to be hitting his stride as he met in the Oval Office with PEOPLE managing editor Landon Y. Jones Jr. and Washington bureau chief Garry Clifford to discuss the year's events, large and small.

Your public approval ratings are higher recently. Does this mean you're getting better at your job?

I think that's part of it. I think it's like any other work, and you learn how to do it better. Not only to make better decisions but to relate to others in a more effective way. It's like anything else. You need to show up for work every day.

I came here with a very clear idea of what I wanted to do. I felt that our country was in a period of profound change in the way we live and work and relate to each other and the world. I wanted to make sure that we could keep the American Dream alive for all the citizens of this country, to bring the American people together more and to preserve our leadership in the world for peace and freedom and democracy and prosperity. So a lot of the things that are happening today—in Northern Ireland, Bosnia, Haiti, the Middle East, in the performance of the economy—a lot of it is the result of three years of very hard work. So I'm getting better at doing the job, perhaps, but I also believe a lot of it is just the product of having goals and just sticking with them through thick and thin until you see the results.

You get such wonderful warm receptions in places like Northern Ireland. Why won't people cut you a break back here?

Oh, but that's as old as time. In the Bible it says a prophet is not without honor except in his own home. So that's probably endemic to human nature. But when I go abroad, also, I represent the United States, so it's not just me. The end of the Cold War has left us as not only the world's only superpower but a genuinely trusted country. Most people believe we have no ulterior motives, that we don't want anything out of Bosnia, we don't want anything out of the Middle East, we don't want anything out of Northern Ireland—except that our people would be more secure if we lived in a more peaceful world.

Why do you think that the American people have not always credited you with things you have achieved?

Sometimes the connection between what we do here and how people live is not all that tight. For example, in 1993, when we passed our economic plan and dramatically reduced the [annual] deficit...it lowered interest rates, and that enabled Americans to go out and borrow money and set off a housing boom and an industrial boom and got the economy going again. But that's an indirect connection. It's not like in the old days—for example, in the Great Depression, where Roosevelt passed a bill and put people to work in the WPA. I think that's one thing.

The second thing is there are a lot of Americans today who still are having a hard time. So we do have a lot of people out there in the broad middle class who are anxious, even though they know our economy is stronger.

So part of your job is to frame the issues for people, to help them see their choices?

Absolutely. And to explain what's going on. This budget debate has actually provided a good framework for that, because I can say to the American people, "Look. I want to balance the budget too. But I want to balance the budget in a way that helps you, that increases your ability to educate your children and to seize opportunities, allows us to honor our responsibilities to our parents and protects the environment, and that brings us together and creates more opportunity." And I think that trying to explain this in those terms makes it easier for ordinary people to identify with.

Today is Pearl Harbor Day. You've decided to send troops to Bosnia. Mr. President, could Bosnia cost you the election?

Sure it could.

Would you rather be right, or would you rather be President?

In a period of change, the only rule to follow is to try to do the right thing. Because it's absolutely impossible to predict the future. And I do a lot of things that could cost me the Presidency, but I didn't run to get reelected. I ran to do the job.

I refused for three years to send our troops to Bosnia, when a lot of people in Europe wanted me to do it, because I think the lesson we've learned from the last 25 years is that we cannot do much good entering someone else's civil war and trying to shape the outcome.

But I always said, from early on in my term, that if we could get a peace agreement, then I thought we ought to help enforce it. This is the biggest problem we've had in Europe since the end of World War II. A quarter of a million people have died. Women and girls have been raped as a tool of war, and people have been kept in concentration camps. It's been a nightmare.

And they have now voted to quit fighting. And they have asked us to help. What does it take for America to be a force for peace in the world? In some cases we have to use our military forces in partnership with our allies, and this is one of them.

Yes, it could cost the election, but I have to do what I think is right. I'll tell you this: I don't want to be explaining to my children and my grandchildren why the United States walked away from that kind of slaughter and forfeited its leadership of the Atlantic Alliance, which has been a great force for good.

Is Bosnia worth dying for?

Well, I think Bosnia is worth the deployment of American military forces, and whenever you deploy forces you might take casualties. It is a grave responsibility, but it is an appropriate risk to take in terms of the reward for saving lives and advancing the cause of peace in Europe.

Can we talk about Mrs. Clinton' s role? She's seen as either too influential, an unelected co-President, or she's under wraps, being hushed up.

Neither of those is true. Insofar as there's been any misunderstanding, it's probably my fault, because I asked her to do a job that probably nobody should ever have been asked to do, and that was to head up this health care task force.

But I knew how difficult that was. Every President who's ever tried to solve the health care problem has failed at it. Roosevelt couldn't do it. Johnson couldn't do it. I knew that she would be able to inspire and motivate and organize people, and she did. I think she did a fine job, but we didn't get there. We failed. And so I think she took a lot of unfair hits. People said, "Did she have too much influence?" She didn't advocate a position or push an issue that I didn't agree with.

Since then she's continued to be active. You know, she took Chelsea, and they had a remarkable trip to South Asia. Then she had a remarkable trip to Latin America, and of course she gave that speech in Beijing on behalf of the rights of women that I believe will go down as one of the most important addresses made by anyone in this Administration.

Your daughter turns 16 in February. Soon she'll be looking at colleges. Are you ready for an empty nest?

No! [Laughs] Goodness, no! Over Thanksgiving, we were up at Camp David, and you know, Chelsea would be eligible to take her driver's test when she's 16. At Camp David it's totally enclosed—just a few miles of roads inside the compound. So we went out driving.

Did Chelsea drive in the middle of the road, or did she turn left or right, Mr. President?

She did all of that! [Laughter] You don't want to be in the middle of the road when you're driving a car. You've got to get to one side or the other. She did a good job, and I was sitting there thinking, you know, it seems like just yesterday I was changing her diapers, and here she is driving me around in a car. You raise [children] to be good, successful adults. But it's hard to let go. We've had an unusually close relationship, and she's an only child. I kid her, you know, that it's okay if she leaves home at 25 and gets married at 30. But I'm afraid she's going to leave home a lot before that.

Do you have some of the same problems that other parents have with teenagers?

Some, although I think she's done remarkably well. She loves her ballet. She does it every day, and she goes to a very challenging school. She does lots and lots of homework. But, you know, she likes music. She likes her friends. She likes movies. She has an interesting life, and I think, on the whole, she handles it very responsibly.

Recently, the Justice Department reported that 1.1 million Americans are incarcerated. One in every three black men in their 20s is in prison, on probation or on parole. These are haunting statistics.

It's all the more stark when you realize that in the last 10 years when there's been this explosion of imprisonment, we've also had an explosion in the growth of the black middle class. So what plainly happened is the economic and social changes of the last 35 years have isolated huge numbers of people in poverty. There was a massive increase in the drug trade, a massive infusion of weapons. And our society has responded [to crime] largely with criminal-justice responses. We've tried to catch more people, jail more people and keep them there longer, and it's a tragedy. In each individual case, it may be justified. But as a way to run a country, it's a tragedy.

In the aftermath of the O.J. Simpson trial, it seems that black Americans and white Americans, even from very similar backgrounds, do not understand each other very well.

I think that blacks and whites see the same set of facts differently because they have different experiences. There's a lot of integration in this country on the surface that doesn't go much below the surface. There are a lot of people that work together, live together. Maybe they have lunch once a week together. Maybe they play golf together. But they don't really say what they think and talk to each other. And I believe it is absolutely imperative for blacks and whites to start being honest with each other about these matters.

The great thing about that Million Man March is that all these people showed up and said, "Okay. I'm going to take responsibility for myself, and my family, and my community, and I've got to do better. But if I do that, will you be my partner?" To me, that's a big part of what this budget debate is all about.

I believe we should say to the American people, you can't have opportunity without responsibility. But if you are prepared to be responsible, we'll try to give you more opportunity. I think that if a community out there in America is willing to say, "We want to lower the crime rate and save more kids," I think we ought to say, "Okay. If you're strapped for cash, we'll help you with funds to hire more police officers and to give these children something to do after school."

You're the first President who's been able to surf the Net. Do you have any concerns about the legislation in Congress on restricting access to pornographic materials?

Well, we worked with the Congress on it. It's conceivable that there could be a bill that I would sign. I want to make sure it's done in the right way. I like to see things that empower parents to have some influence over this while their children are young.

I don't have a computer in the Oval Office, but we have quite a nice one over in the residence. When I'm at home—thanks largely to Chelsea, who's taught me most of what I know about computers—we've had a lot of fun with it, playing all those complex games I can't begin to do as well as she does.

What's the best advice you've gotten as President about being President?

Never pick a fight with people who buy ink by the barrel. [Laughter]

Al Gore gave me some great advice—he may kill me for this—but he said, "You can analyze a problem and calculate all of its aspects, but you also can feel what is right about a course of action. The American people pay you to think, but they want to know how you feel. And you make a big mistake if you spend too much time letting them see how you think rather than letting them know how you feel on what's right or wrong."

A lot of my predecessors have said the Presidency is preeminently a place of moral leadership. It's a place where people want to know there's a compass and there's a direction. And I've really been able to talk more freely about that, I think, in this budget debate than ever before, because to me it's so clear the different choices that are involved, the kind of America I want for my daughter when she's my age, and for my grandchildren.