who can tell me what this means "Should we create a private foundation to entice radical madrassas to a more moderate course?"

Not sure. But this is one way how I would interpret it: The Dept of Defense works with say state dept to develop an organization which act as a watchdog of charity type organizations. This watchdog organization increases the transparency of it's members. It could for instance rate a charity group by using a number of criterion. Now this watchdog group must be trustworthy. Damn near impossible task, how for instance, are you going to get organization which isn't infested various govt or terrorist agents?
Another way this could be interpreted is the US govt played a leading role in creating these radical madrassas in the first place (to recruit members to fight against Soviet occupation of Afghanistan- CIA operation). Therefore it could be argued that this could be repeated but this time have different focus. I think this, to say the least, would be very difficult.
Hmm, this is harder question than I first realized. Here is an article it sheds some light on the problems of reform:
http://quickstart.clari.net/qs_se/webnews/wed/cg/Qpakistan-attacks.ROeK_DS4.html

Anyways, to answer the question, I think that rather than create, Rumsfeld should be thinking in terms of finding and strengthen existing organizations.