Israeli Defence Minister Ehud Barak called a surprise news conference on Wednesday, raising speculation he will demand Prime Minister Ehud Olmert to step aside after damaging testimony from a US businessman in a corruption case.
Barak's Labour Party is the main partner in Olmert's fragile governing coalition and a new election, certain to disrupt Israel's peace talks with the Palestinians, would be likely if it bolted. "Either Olmert suspends himself or the Labour Party must leave the government," senior Labour legislator Danny Yatom said amid news reports that Barak would make that demand.
A spokeswoman for Barak, a former prime minister, said he would hold a news conference in Israel's parliament at 1:30 pm (1030 GMT). She gave no details on what he planned to say.
US businessman Morris Talansky testified on Tuesday that he gave Olmert $150,000 in cash-stuffed envelopes, including personal loans that were never repaid, over a 15-year period before the veteran politician became Israel's leader.
Olmert, whose defence attorneys will cross-examine Talansky only in July, has acknowledged receiving money from the New York-based businessman but said the funds were legal election campaign contributions.
Denying any wrongdoing, he has said he would resign if indicted. "It looks like this could be it for Olmert. Nothing can rescue him," said an Israeli official of the corruption allegations.
But Tal Silberstein, an Olmert adviser, told Israeli Army Radio the prime minister has no intention of stepping aside now. "I can tell you, based on a recent conversation with him, that he has no intention of announcing that he is taking a leave of absence or declaring anything at this stage -- not as long as he is trying to prove his innocence," Silberstein said.
Mark Regev, an Olmert spokesman, said: "The prime minister is convinced that as the investigation proceeds, it will become clear that he did nothing wrong.
If Olmert quits, President Shimon Peres, under Israeli law, could name a replacement after consultation with leaders of parliamentary parties.
The frontrunner would likely be Olmert's deputy, Foreign Minister Tzipi Livni, Israel's chief delegate to peace talks with the Palestinians which the United States hopes can result in a statehood agreement by the end of the year.
Should Olmert, 62, step aside temporarily while prosecutors pursue the corruption case against him, Livni, as his deputy, would likely take over, for an interim period of 100 days.
Israel Radio painted another scenario, reporting that Barak was considering the formation of an emergency government with Benjamin Netanyahu's right-wing opposition Likud party that would leave out Olmert's centrist Kadima party.
Olmert, twice questioned by police in the past few weeks, has said he took cash from Talansky for two successful campaigns for mayor of Jerusalem in 1993 and 1998, a failed bid to lead Likud in 1999 and a further internal Likud election in 2002.
A judicial source said the sums involved totalled hundreds of thousands of dollars.
Talansky, 75, told the Jerusalem District Court that he had helped Olmert because he regarded the former Jerusalem mayor as "a man who could accomplish a great deal" for Israel.
A poll in the Haaretz newspaper said that 70 per cent of the Israeli public did not believe that Olmert was telling the truth about using the money only for political campaigns.