Olmert Under Renewed Pressure to Resign

Israel's prime minister, Ehud Olmert, is coming under pressure to resign after an American millionaire was reported to be embroiled in a high-level bribery investigation involving him.

Speculation about the Israeli leader's future is rife after a report â€" on the eve of the country's 60th birthday celebrations â€" that the Long Island financier Morris Talansky is set to testify to Israel's state prosecutor's office.

The probe into the relationship between the two men is the latest in a string of corruption investigations that have dogged Olmert since he replaced Ariel Sharon, who suffered a stroke in 2006.

It may also overshadow next week's visit by the US president, George Bush, who has been talking up the prospects of a peace deal between Israel and the Palestinians before the end of the year. Saeb Erakat, the chief Palestinian negotiator, said today that any agreement with Israel would be delayed if the investigation forced Olmert's resignation and new elections.

Yasser Abed Rabbo, a member of the Palestinian negotiating team, said the prospect of Olmert leaving office "does not bother us in any way". He added: "In any case, there is no progress" in peace talks with Israel.

Israel's courts imposed a sweeping gag order on details of the investigation, but this week the Jerusalem district court allowed publication of the fact that a US businessman had been called to testify. The New York Post reported today that the witness was 75--year-old Morris Talansky, who has a reputation as a major political donor in the US.

Details of the allegations against Olmert are likely to become clearer after tomorrow's celebrations, when the gagging order is expected to be lifted.

The New York Post has alleged that Talansky's name repeatedly appears in the logs of financial dealings kept by Olmert's long-time aide, Shula Zaken, who was dismissed â€" only to be rehired later â€" for interfering in appointments to the Israeli Tax Authority.

The investigation into Olmert has triggered speculation that Israel's foreign minister, Tzipi Livni, who is also from his centrist Kadima party, would likely replace the prime minister.

"This time, there is a chance for a big shake-up in the political system, and we may even have elections in the coming months," an unnamed Kadima source was quoted as saying by the Yediot Aharonot daily. "For the time being it's difficult to say whether Olmert will survive this affair too, despite the strength he has been displaying."

Labour's Ehud Barak, the defence minister in Israeli's coalition government, is keen to return to the prime minister's office but would first have to stand in a general election as he is not an MP.

Polls, however, have been showing for several months that the right wing Likud party under the leadership of the former prime minister Binyamin Netanyahu would most likely win a general election.

Olmert insists he has cooperated with investigators and condemned "malicious and vicious rumors" about the case. His office today denied a report on al-Jazeera TV that quoted unidentified sources as saying he planned to quit or step down temporarily next week.