Israel PM to quit after September party vote

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LOOKING FOR GUIDANCE: Israeli PM Olmert (pictured) has denied corruption allegations. (AFP)

Israeli Prime Minister Ehud Olmert, dogged by corruption probes, said on Wednesday he will step down mid-September in a surprise move that casts a long shadow over Middle East peacemaking efforts.

"After the election of my successor I will step down to allow a government to be formed rapidly," Olmert said after declaring he would not run in September's election for leadership of his centrist Kadima party.

His announcement marks the apex of a political storm unleashed when police launched a probe in May over suspicions he had accepted vast sums of money from US financier Morris Talansky to fund elections campaigns and a lavish lifestyle in the 13 years before he became premier in 2006.

"I have made mistakes and I regret it," said the 62-year-old Olmert, who has faced a chorus of calls for his resignation over the corruption allegations.

"I will quit my duties in an honourable, just and responsible manner, as I have acted throughout my mandate," he said in a televised announcement from his official residence in Jerusalem. "I will then prove my innocence."

He stressed he will "happily accept the outcome" of the Kadima primary, which the Israeli media said would be held on September 17.

A senior Israeli official said Olmert spoke to his friend and key ally US President George W. Bush, who helped relaunch the talks with the Palestinians in November, before making his decision public.

"We are going to look forward to working with all responsible Israeli leaders in the government, whether it is this government or future governments," US State Department spokesman Sean McCormack said.

Defence Minister Ehud Barak, whose Labour party is Kadima's key partner in the government coalition welcomed Olmert's announcement. "Prime Minister Ehud Olmert's decision was appropriate and correct," an aide quoted Barak as saying.

Last month Barak pushed Olmert to schedule an unprecedented party primary by threatening to support a bill to dissolve parliament.

Once the prime minister steps down, President Shimon Peres should designate the MP best placed to form a parliamentary majority. Under Israeli law, the designated MP would have up to 42 days to form a government, during which time Olmert would head a transitional administration.

Olmert has admitted he had accepted money from Talansky but has denied any wrongdoing.

State Prosecutor Moshe Lador said last week he would decide whether to indict Olmert over the Talansky affair "very soon."

Talansky said in his May testimony he had given Olmert cash-stuffed envelopes on multiple occasions to cover expenses for his stays in the United States and pay for his election campaigns as Jerusalem mayor and Likud MP.

In a fierce cross-examination this month Olmert's lawyers uncovered several contradictions in Talansky's testimony but the 75-year-old Jewish-American financier insisted his overall story was accurate.

The latest investigation led to a chorus of calls for the resignation of Olmert, who is currently facing a total of six corruption probes.

Foreign Minister Tzipi Livni is widely viewed as a front-runner in the party election, but Transport Minister Shaul Mofaz and Public Security Minister Avi Dichter are also expected to compete.

Olmert's departure could further affect already slow-moving US-backed peace talks with the Palestinians relaunched in November with the goal of resolving the decades-old conflict by the end of the year.

Palestinian president Mahmud Abbas's spokesman insisted the Palestinians would continue to work with Israel regardless of who succeeds Olmert.

"This is an internal Israeli matter," Nabil Abu Rudeina told newswire AFP by telephone from Tunis. "What matters to the Palestinian Authority is that there is an Israeli head of state that adheres to the peace process."

Olmert's departure could also derail indirect talks with neighbouring Syria relaunched in May under Turkish mediation after an eight-year freeze.

Olmert took over as prime minister from Ariel Sharon in January 2006 after his mentor fell into a deep coma. He then led Kadima to victory in parliamentary elections in March that year.

His government was plunged into turmoil that summer when Israel fought Lebanon's Hezbollah militia to a bloody 34-day stalemate widely viewed as a failure in Israel.

The war led to mounting calls for Olmert to resign, but the premier endured even when his approval ratings hit single-digit record lows.

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