Rudy has answered the infamous quote before, way back in 1994 after it was said
http://query.nytimes.com/gst/fullpage.ht...A962958260
its the difference between Liberty and Freedom, raw Freedom is anarchy. Which is what Guiliani was explaining, though poorly articulated. and as he mentioned it gets back to the "Fire in crowded theater" scenario and how you freedom only extends to the point it does not interfer with another person's freedom. There are boundaries there and that is what Liberty is, the difference.
So you 'submit to authority' a certain amount of discreation for the sake of society and Liberty as a whole, if you don't thats where the law comes into play... calling in fake fire threats is against the law, you don't have the freedom to do it. Killing someone is against the law as it obviously infringes on anothers Liberty(and life), etc.
Which is why when you have terrorist living in sleeper cells, with goal of future 9/11's among other things, the Libertarian thing to do is to detect them beforehand and thwart the attacks, thus securing Liberty. National Security is a Civil Liberty
Trying to balance out Individual Freedoms with the Freedom of Society as a whole(National Security, peace, the right to go out in public and not fear for your life, etc) is where legislatures come into play and the hardest part of their job is finding the right balance given the current real world realities and threats........
that would've been a great question for the debates though, especially in one that only allowed for one or two minute responses.