Huh??
Well, sure, you can sue anybody for anything. In fact, you can even sue yourself. See the California case of Lodi v. Lodi. The question is, will you be doing anything more than wasting your time and money. In the case of suing anyone for libel where the person suing has made himself a public figure [as Kerry and O'Neill both have], and the suit is about the truth or falsity respecting a matter of public importance, it is damn near impossible for that person to prevail.
The threat of law suits for libel gets thrown around all over the place [reminds me of what John Wayne said in True Grit, when Kim Darby mentions, for the umpteenth time, the name of her lawyer, J. Noble Dagget "She draws him like a gun."].
It ain't an option. Under the prevailing rule, set forth in New York Times v. Sullivan, there's not a ghost of a chance that Kerry would prevail against O'Neill [and O'Neill knows it-- making the "sue me for libel" challenge a mere taunt] and not a ghost of a chance that O'Neill would prevail against a reporter or headlline writer based on the "Lied" headline. In England, it would be easier, but not in the US.