ISRAELI PM OLMERT'S FUTURE GRIM AS DETAILS EMERGE OF CASH-STUFFED ENVELOPES

Analysis by Peter Hirschberg

(IPS) JERUSALEM -- Even a seasoned, street-smart political brawler like Prime Minister Ehud Olmert would require a salvage act of Houdini-like magnitude to survive his current predicament. Engulfed by a corruption scandal, his government is unravelling, his own party is beginning to turn against him and, most critically, his public support has evaporated.

The seemingly inevitable demise of the Israeli leader has increased the likelihood of an early national election. It has also reduced the chances that the peace process -- with the Palestinians and with Syria -- will bear any fruit this year.

In a clear indication that Olmert's political woes now appear terminal, Defense Minister Ehud Barak called Wednesday on the Prime Minister to step down, otherwise he said he would push for new elections. "I do not think the Prime Minister can simultaneously run the government and deal with his own personal affairs," said Barak, leader of Olmert's main coalition partner, the Labor Party.

A day later, Foreign Minister Tzipi Livni, the number two in Olmert's ruling Kadima party, said her party should start preparing for new elections, including holding internal primaries to choose a new leader.

The "personal affairs" Barak was referring to are allegations against Olmert that he received hundreds of thousands of dollars in cash from a U.S. businessman when he was mayor of Jerusalem in the 1990s and when he served as minister for industry and trade before becoming prime minister in 2006.

The day before Barak called on Olmert to stand down, Morris Talansky, a 75-year-old U.S. businessman, told a Jerusalem court how he had given Olmert some $150,000 in cash-stuffed envelopes over a 15-year period. The money, he said, had gone in part to cover the Israeli leader's personal expenses.

In one instance, Talansky said, he had given Olmert $25,000 to pay for a family trip to Italy and that on another occasion he had paid $15,000 to cover Olmert's stay at the Regency hotel in New York. He also said he had paid for Olmert's flights to be upgraded from business to first class.

"I only know that he loved expensive cigars. I know he loved pens, watches. I found it strange," Talansky told the court. He said he had helped fundraise for Olmert because he admired the Israeli leader's ability "to reach out to the American people, the largest and richest community of Jews in the world. That's why I supported the man. That's why I overlooked, frankly and honestly, a lot of things. I overlooked them, maybe I shouldn't have."

The Prime Minister has denied using the money for personal expenses, saying that the funds went to cover his campaign debts, including when he ran in the primaries for the center-right Likud party in 2003. He has rejected the calls to stand down, saying he will only resign if he is indicted. And he has asked Kadima members to hold off on leadership primaries until his lawyers have had a chance to cross-question Talansky.

But with Barak calling for him to step down and Livni strongly intimating that she also expects him to, pressure is building for elections. That's not necessarily Barak's preferred option. With the center-right Likud party headed by Benjamin Netanyahu holding a healthy lead over the Labor Party in opinion polls, Barak would rather Kadima replace Olmert with Livni, who could then try to reconstitute the Kadima-Labor government.

But Eli Yishai, the leader of the ultra-Orthodox Shas party, said this week that an "election dynamic" had been unleashed and the formation of a new government was unlikely. That comment is telling, since a Livni-led government would not have a majority without Yishai's Shas party.

The growing sense in political circles is that elections will be held before the end of the year. Vice-Premier Haim Ramon, who is a close associate of Olmert, said Friday in Washington that he expected the elections to be held in November.

With Olmert effectively nullified and politicians beginning to gird for a new election, talks with the Palestinians and talks with Syria, which were renewed less than two weeks ago after an eight-year hiatus, will be frozen. A U.S.-brokered year-end deadline for an Israeli-Palestinian agreement now looks highly unrealistic.

"Any way you look at it, if somebody sneezes in Tel Aviv, I get the flu in Jericho," said senior Palestinian negotiator Saeb Erekat, in response to the political imbroglio in Israel. "I'm the first to be affected by the internal crisis. Whenever Israel witnessed similar crises (in the past), this was translated to more difficulties for us. I hope this will not be the case this time."

It almost certainly will. Support for Olmert among the general public is critically low. One poll conducted after Talansky gave evidence showed that 70 percent of Israelis did not believe Olmert's version that he used the money only for campaign purposes. Another poll showed public satisfaction with the Prime Minister at just 14 percent.

This almost total absence of public support has exposed the Prime Minister to charges that he has lost the right to govern -- a mantra now echoing across the political spectrum. In light of his legal woes, any major policy decision, like concessions to the Palestinians or progress in talks with Syria, would now be viewed as a cynical attempt by Olmert to stave off his political demise.

"This time, it seems, nothing will help," wrote Sima Kadmon, a political columnist in the daily Yediot Ahronoth newspaper. "Even if Olmert makes peace with Syria and Iran, the story is finished. We are going to elections."