Lincoln was referring to Democratic Congressman Clement Vallandigham.
I kind of doubt that Lincoln, a lawyer, would have written this in quite that way (ergo,I'm skeptical of the quote).
However, he did pen the following letterto Erastus Corning, in June 12, 1863
(excerpts; the whole is worth a read)
Nothing is better known to history than that courts of justice are utterly incompetent to such cases (as rebellion). . .
This . . . plainly attests the understanding of those who made the Constitution that ordinary courts of justice are inadquate to 'cases of rebellion' . . .
(In some cases) arrests are made not so much for what has been done, as for what probably would be done. . .
The insurgents had been preparing for it (rebellion) for more than thirty years, while the government had taken no steps to resist them. . .
It was undoubtedly a well-pondered reliance with them (the rebels) that in their own effort to destroy the Constitution. . .the government would, in great degree, be restrained by the same Constituion from arresting their progress. Their sympathizers pervaded all departments of the government and communities of the people. From this material, under the cover of "liberty of speech", "liberty of the press", and "habeas corpus", they hoped to keep on foot among us an efficient corps of spies, informers, suppliers and aiders and abettors of their cause in a thousand ways. . .
they also knew that they had friends who would make a question as to who was to suspend (habeas corpus); meanwhile, their spies and others might remain at large. . .
Or, if as ha happened, the Executive should suspend the writ without ruinous waste of time, instances of arresting innocent persons might occur, as are always likely to occur in such cases; and then a clamor could be raised in regard to this, which might at least be of some service to the insurgent cause. . .
Must I shoot a simple-minded soldier boy who deserts, while I must not touch the hair of a wily agitator who induces him to desert?
This is none the less injurious when effected by getting a father, or brother, or friend into a public meeting, and there working on his feelings till he is persuaded to write the soldier boy that he is fighting in a bad cause, for a wicked administration of a contemptible government. I think that, in such a case, to silence the agitator and save the boy is not only constitutional, but withal a great mercy.
After the battle of New Orleans, and while the fact that the peace treaty had been concluded was well known in the city, but before official knowledge of it had arrived, General Jackson still maintained military law. . .
Among other things, a Mr. Louiallier published a denunciatory newspaper article. General Jackson arrested him. A lawyer by the name of Morel procured the United States Judge Hall to order a writ of habeas corpus to release Mr. Louiallier. General Jackson arrested both the lawyer and the judge. A Mr. Hollander ventured to say of some part of the matter that "it was a dirty trick".
General Jackson arrested him. . .A day or two more elapsed, the ratification of the treaty of peace was regularly announced, and the judge and others were fully liberated.
It may be remarked--first, that we had the same Constitution then as now; secondly, that we had then a case of invasion. . . and thirdly, that the permanent right of the people to public discussion, the liberty of speech and the press, the right of trial by jury, the law of evidence, and the habeas corpus, suffered no detriment whatever by the conduct of General Jackson. . .
Would a hanging rope hold the likes of the Traitor of the Senate, the un-American Kennedy.
http://bioguide.congress.gov/scripts/biodisplay.pl?index=V000008
Not the quote but relevant.
More at Snopes
http://msgboard.snopes.com/cgi-bin/ultimatebb.cgi?ubb=get_topic;f=32;t=000405;p=1
Given the recent controversy about the authenticity of quotations attributed to President Abraham Lincoln, Insight went directly to the primary source for the presidential statements about how to deal with congressmen who sabotage the war effort. This reporter found the quotes in a June 1863 letter that President Lincoln wrote, published that year in pamphlet form as "The Truth from an Honest Man: The Letter of the President," by King & Baird Printers in Philadelphia and distributed by the Union League. Insight thanks Herbert Romerstein for providing the original pamphlet from his collection.
http://72.14.207.104/search?q=cache:mLZ3DT-KlPEJ:www.insightmag.com/news/2003/12/23/National/When-Does.Politics.Become.Treason-574556.shtml+%22When+Does+Politics+Become+Treason%22&hl=en
Another Lincoln quote worth remembering:
"All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Buonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years. At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us."