JIM LEHRER: And to the second of Margaret Warner's reports from South Korea - tonight, the tensions between North and South.
MARGARET WARNER: Kim Moon-soo searched for fares on a recent Saturday, just looking to make the day rate on his rented cab. But it's not every hack license that features an official portrait. That's because Gov. Kim is taking the pulse of his province, South Korea's largest, from the driver's seat.
Lately, his passengers' chatter has been about last year's North Korean attacks on a Southern warship, the Cheonan, and on Yeonpyeong Island just off their provincial coast.
GOV. KIM MOON SOO, Gyeonggi Province, South Korea (through translator): People realize that war is something that is not far off. It could happen suddenly. So, they feel there's need to strengthen defense.
MARGARET WARNER: A news report that the next likely North Korean target was a mainland city in his province sent Kim into action.
GOV. KIM MOON SOO (through translator): I met with the commanders and the minister of defense, and I said that in case of attack, I demand a retaliation 10 times more than what they have done to us.
MARGARET WARNER: At an observatory on the border, the governor showed us the part of his province that now belongs to the North.
Being this close, do you feel under threat?
GOV. KIM MOON SOO (through translator): It doesn't take much. If they want to destroy us, they can.
MARGARET WARNER: Up until now, South Koreans' attitudes toward the North have split along generational lines. And we found traces of that when we visited the Park family, headed by 77-year-old Park Seung Chang, a veteran of the Korean War.
How do you see the North Koreans? What is your opinion of them?
PARK SEUNG CHANG (through translator): They're just plain warmongers. If they attack us, we should attack twice, three times, so they would never think of attacking us again.
MARGARET WARNER: His 46-year-old son, Park Kyung-il, has gone to the North several times as a driver.
PARK KYUNG-IL (through translator): I have met North Koreans, and they were like the people in the '60s in South Korea. Their life was so pathetic. I felt sorry for them.
MARGARET WARNER: But 18-year-old Park Ho-sun, whose generation has until now seemed indifferent towards the North, isn't any longer.
PARK HO-SUN (through translator): As a devout Christian, I didn't feel any hostility to North Koreans. But the attack made it clear that North Korea's Kim Jong-Il is a bad person. And it's not just myself. Many students have been affected. We cannot just sit here, take all the things that North Korea is throwing at us. The government should not be such weaklings.
MARGARET WARNER: In the days after the Yeonpyeong Island attack, South Korea's defense minister resigned, and President Lee Myung-Bak announced tough new rules of engagement. It was a reaction to the fright and anger most Koreans expressed at what they saw as a weak, ineffective military response.
CHANG KWANG-IL, South Korean deputy defense minister (through translator): I would like to humbly accept those criticisms.
MARGARET WARNER: Chang Kwang-il is the deputy defense minister for policy.
What would you say to the South Korean public if they're worried about whether their military could protect them?
CHANG KWANG-IL (through translator): When we face threats, we will become more resolute, and we will make sure that North Korea learns a painful lesson that all provocations will exact a very comparable or exceeding cost.
MARGARET WARNER: Chang notes an unintended benefit of the attack: Volunteers for the elite Marine Corps have doubled.
Seung Soo Han left Boston College to volunteer.
SEUNG SOO HAN, Republic of Korea Marine Corps: I still didn't realize that Korea is still in the war. It's not over yet. I just never really thought about it until the Cheonan happened. I just thought I had to come here.
MARGARET WARNER: His Marine regiment is stationed right at the North Korean border.
SEUNG SOO HAN: The situation is definitely tense. North Korea is right -- just like a mile ahead of us. We're standing right there and just looking at them, and always watching out whether something might happen.
MARGARET WARNER: The ammunition those Marines carry could well have come from one of industrialist Roy Ryu's factories -- among his businesses, a defense concern begun by his father to help arm a young South Korea.
ROY RYU, chairman, Poongsan Corporation: And the best news is what we do for the country, not to make money, so it is the patriotic part of the business.
MARGARET WARNER: The recent attacks were a shock, he said, but did nothing to dent his or the country's bottom line.
ROY RYU: Our stock market has hit record highs this year. Our economy is improving 5 percent last year, so -- and the foreigners have continued to invest, so it has no change whatsoever.
MARGARET WARNER: Foreign investment has helped South Korea transform itself over the past three decades from a provincial backwater to a high-tech hub known for Samsung flat-screens, Hyundai Motors, a high-flying stock market and the world's 12th-largest economy.
But it could have performed even better, says Yonsei University economics Professor Lee Doowon.
LEE DOOWON, professor, Yonsei University: Because of this North Korean aggression against South Korea, we used to have so-called Korea discount in our stock market.
MARGARET WARNER: For years, he says, the specter of North-South conflict depressed stock values some 40 percent. Now the discount is just half that, but it's still there.
LEE DOOWON: Our GDP is something like 40 times larger than the North Korean GDP. So, materially speaking, we have a lot more things to lose out of the war. So, that's why South Korean government or South Korean military is more restrained than the North Korean government whenever these kinds of military conflict take place.
MAN: The outside world was shrugged aside in a mood of Korean togetherness.
MARGARET WARNER: For a decade, from the late-'90s, there was an alternate vision here, the so-called sunshine policy of the late President Kim Dae-jung. The South gave aid to the communist state and let some South Korean businesses set up shop there, hiring cheap North Korean labor.
KRIS SONG, former CEO, Korea Microfilter (through translator): The idea was to have a win-win solution for business and politics.
MARGARET WARNER: Kris Song bought the vision. The auto-parts firm he used to run invested $5 million in air filter plant at the Kaesong Industrial Complex just over the border.
KRIS SONG (through translator): From the political standpoint, we were thinking for North and South reconciliation. But the problem is, there is a big gap between the intended basic direction of where Kaesong was going and where it is now today.
MARGARET WARNER: Lack of skills and transportation infrastructure caused missed deadlines, he said, or huge overtime charges. Finally, his firm froze its investment. And as North-South tensions have grown, both governments have made it harder to do business there.
And even if there is an expansion of Kaesong Industrial Complexes elsewhere in North Korea, your company is not going to part of that?
KRIS SONG: No. We already have enough experience.
MARGARET WARNER: The South Korean government has been insisting it won't resume any cooperation until the North agrees to talk about last year's attacks. And today, Seoul said, the North agreed.
An architect of the sunshine policy, President Kim Dae-jung's former chief of staff, Park Jie Won, is among those calling for re-engaging with the North.
PARK JIE WON, floor leader, Democratic Party (through translator): We should have a dialogue. And we should resume humanitarian assistance and cooperation.
MARGARET WARNER: As opposition Democratic Party floor leader in the legislature, Park blames President Lee's no-aid, no-trade policies for the North's recent aggressions. He argues engagement is the only way to head off the North's nuclear ambitions, and there's not a moment to lose.
PARK JIE WON (through translator): If we allow North Korea more time, it will become more of a threat to us. Instead, the Lee administration is pushing a hard-line policy, trying to make North Korea succumb to pressure and collapse.
MARGARET WARNER: For many South Koreans, like those shopping at one of Seoul's bastions of consumerism, the I'Park Mall, the prospect of North Korea's collapse or reunification with it seems an abstraction. For some, it is a far-off dream.
SUNNY OK (through translator): I hope North Koreans no longer have to starve and can be free, like us, even if it takes a long time.
MARGARET WARNER: For others, it's a burden to avoid.
CHANG YEON JIN (through translator): The economic gap between North and South is so big that, if there is unification, it will slow down our development.
MARGARET WARNER: Back up near the border, Gov. Kim expresses this society's mixed feelings. Though he's focused on defending his province, he also yearns for Koreans to be one people again.
GOV. KIM MOON SOO (through translator): As children, we used to sing a song, "Our Wish Is For Unification." Unification is our most important mission.
MARGARET WARNER: For now, industrialist Roy Ryu, who also keeps a home in earthquake-prone Los Angeles, says he feels perfectly secure here in Seoul.
ROY RYU: I think we probably feel safer than being in California. I think the people now realize, yes, they attacked the island, but are they dumb enough to attack the main territories? So, I think Koreans believe that and it's not going to happen.
MARGARET WARNER: And so South Koreans and their fast-paced life keep rolling along, somehow at peace with the threat close by.
JUDY WOODRUFF: As Margaret just said, North Korean officials offered today to hold high-level military talks with South Korea, and Seoul agreed.
In Washington, a State Department official called the move a positive sign toward easing tensions in the region.
We asked Margaret about today's developments.
MARGARET WARNER: It does appear to be a victory for the hard line taken of late by South Korean President Lee Myung-Bak. Since December, he's been resisting the North's call for unconditional talks on economic aid, insisting that the North had to first apologize or at least own up to last year's attacks.
The North's new offer, which came in this morning, called for military-to-military talks. And that, a top U.S. official told me, is what persuaded the South that the North was ready to address its concern. The right players will be in the room, he said. The North came around to using the channel that the South thought was appropriate.
What caused this turnaround? The South Korean press is making much of the fact that it comes a day after President Obama met with Chinese President Hu in Washington. They issued a joint statement calling for a North-South dialogue, also expressing concern about the North's uranium-enrichment program. And a ruling party assemblywoman said to me this morning she had heard it was a real struggle to get that in the joint statement, and she thought this represented a degree of success for the summit.
JUDY WOODRUFF: Tomorrow, Margaret reports on educational pressures on South Korean students.