Palpatine sows seeds of mistrust in Anakin by telling him that the Jedi Council want to control the Republic ("They're planning to betray me"). Anakin agrees that the Jedi don't trust him - to which Palpatine adds the Senate, the Republic, and democracy itself. Palpatine rightly deduces that Anakin's mission is to spy on him, and reminds him of his early teaching: "All who gain power are afraid to lose it. Even the Jedi."
Palpatine argues that the Jedi and the Sith are similar in most ways, including the fact that both quest for greater power. Anakin compares the two groups: the Sith rely on their passion for strength ("They think inwards - only about themselves") while the Jedi are selfless ("They only care about others"). Palpatine digresses, speaking about the Sith legend of the tragic figure of Darth Plagueis the Wise, who was a powerful and wise Dark Lord of the Sith.
He used his dark side powers to do good - to save people from death. His fate is that he feared losing his own power, which eventually happened. His apprentice was Darth Sidious (Palpatine himself), who killed his Master in his sleep ("It's ironic. He could save others from death but not himself"). Anakin asks: "Is it possible to learn this power?" Palpatine slyly answers: "Not from a Jedi."
Anakin reports back to the Jedi Council, conveying the Chancellor's request for Anakin to lead the campaign to capture General Grievous at Utapau. The Council declines, citing instead that they would decide the matter - they propose a Master with more experience, and Obi-Wan is selected. As Obi-Wan departs for Utapau, he expresses his pride and confidence in Anakin's strength and wisdom: "I have taught you everything I know. And you have become a far greater Jedi than I could ever hope to be."
He also cautions him to be patient with the Jedi Council: "It will not be long before the Council makes you a Jedi master." As they bid farewell to each other, both say: "May the Force be with you." Anakin remains stressed, but feels he might have found a way to save Padmé from his greatest fear - dying during childbirth - by learning the Dark Side power from Palpatine.
Obi-Wan begins searching for General Grievous in Utapau's Pau City, where he locates him on the Tenth level, supported by thousands of battle droids. The Jedi Master arrives saddled on the back of Boga, a native dragon-like, beak-faced beast known as a varactyl, to engage in one-on-one combat with Grievous.
When the General produces four lightsabers (one in each of his four hands), taken from Jedi he has killed, Obi-Wan slices off Grievous' two lower hands, as Commander Cody-2224 (Temuera Morrison) assaults the area with his army of the Republic, and Grievous flees on a wheel bike with Obi-Wan in pursuit on Boga. When thrown from the wheel bike, Obi-Wan stabs the downed Grievous in the stomach with an electrostaff, tears open his protective abdominal plates, and fires at his internal organs with the General's own blaster - until he bursts into flames and falls down dead.
Back at Coruscant, Anakin reports the successful action against General Grievous to Chancellor Palpatine, and again expresses his doubts about ever becoming a Jedi Master, and his feelings of exclusion from the Council. Palpatine encourages the brooding Anakin by offering his knowledge of the Dark Side of the Force, and arguing for a broader and more inclusive view than the Jedi.
Palpatine offers a tempting way to save Anakin's wife "from certain death" and avoid being a "pawn" of the Jedi Council. Anakin then realizes that Palpatine is the Dark Lord Darth Sidious and angrily draws his lightsaber, but instead of taking decisive action by killing him, he decides to turn him over to the Council.
Meanwhile, the Jedi Council worries that 'Dark Side' powers surround the tyrannical Chancellor with his emergency powers. They believe that he should step down and return his powers back to the Senate, now that General Grievous is destroyed, or otherwise he should be removed from office. The Jedi feel that they would have to control the Senate to ensure a "peaceful transition."
When Anakin reports to Mace Windu, he warns that the Chancellor wouldn't give up his treacherous power. The "terrible truth" is that Chancellor Palpatine is a Sith Lord, who is trained to use the Dark Side. Mace responds that the Jedi Order must move quickly to survive - Anakin warns that the powerful Chancellor's arrest would require his help, but Mace orders him to stay out of the affair because he senses "confusion" and fear that clouds his judgment. He must wait in the Jedi Council Chambers, while Mace and three other Jedi Masters would confront Palpatine in his office.