Upon what basis does God know the future?

All orthodox Christians affirm the fact that God has exhaustive knowledge of the future. However, many Christians have not thought through the issue as to how He knows future events.

Does God, from His vantage point merely passively observe the events of time (and the "free-will" acts of His creatures), taking in the data He sees? Or does God decree all the events of time so that they work to serve His purpose - a purpose ordained before any event in time ever occurred (what we call an "eternal decree")? Is God merely a cosmic spectator as He observes the events of time, or does He ordain whatever comes to pass as One who "works all things according to the counsel of His will"? (Eph. 1:11)

In this youtube video below you will find a very interesting interchange between Dr. James White and a gentleman named John calling in to the Dividing Line program. Starting off with 1 Timothy 2:4 and God's desire for the salvation of "all men" (and exactly what this might mean), the conversation develops into a rigorous (yet friendly) discussion about God's Sovereignty. (approximately 25 minutes)