JERUSALEM, May 28: Israeli Prime Minister Ehud Olmert’s main coalition partner demanded on Wednesday he leave office over corruption allegations, dealing another blow to the unpopular leader in turmoil threatening to derail peace talks.

Defence Minister Ehud Barak issued the call — and raised the prospect of an early election — a day after a US businessman told an Israeli court how he had handed Olmert envelopes stuffed with thousands of dollars in cash.

“I do not think the prime minister can simultaneously run the government and deal with his own personal affair,” said Barak, a former prime minister whose Labour party is Olmert’s biggest partner in a fragile coalition government.

“Therefore, out of a sense of what is good for the country and in accordance with the proper norms, I think the prime minister must detach himself from the day-to-day running of the government,” Barak told a news conference.

Olmert’s office declined comment. Israel Radio said Olmert, who is negotiating peace with the Palestinians and pursuing indirect talks with Syria, held a closed meeting with confidants and told them he had no intention of heeding Barak’s call.

Olmert has ridden out similar storms since taking office in early 2006 and Barak was less than clear on what steps he might take, and when.

Barak also stopped short of action that would immediately bring down the government and trigger an election that could backfire on him. Polls suggest the right-wing Likud under Benjamin Netanyahu would handily defeat Labour.

Barak spelled out Olmert’s options as “suspension, vacation or resignation or declaring himself incapacitated”. He added: “We will not be the ones to determine this.”

Commentators noted Barak took no action on demands he made last year for Olmert to go after the costly 2006 Lebanon war.

“We’ve seen this movie before,” political analyst Ravid Drucker said on Channel 10 television after the news conference.

The left-wing Meretz party said Barak’s latest comments were not a real ultimatum and were just “hot air”.

NEW LEADER: Barak put the onus on Olmert’s centrist Kadima party to seek a new leader to replace him. Olmert has denied any wrongdoing in the corruption case — saying the money was legitimate campaign funding — but has pledged to resign if indicted.

“If Kadima does not act and a government is not formed during this current session of parliament that is to our liking, we will act towards setting an agreed and early date for elections,” Barak said, urging the party to move “soon”.

The absence of a deadline gave Barak leeway to allow the ongoing criminal investigation to run its course and possibly end in an indictment which Olmert said would make him quit. A parliamentary election is not due until 2010. A defection by Labour would almost certainly force an early ballot and disrupt a ME peace process that Barak supports.

Netanyahu is deeply sceptical of the peace talks with the Palestinians, which Washington hopes can achieve a deal before President George Bush leaves office in January, as well as on recently disclosed indirect negotiations with Syria.

Palestinian President Mahmoud Abbas believes the crisis in Israel will hurt peace talks, his spokesman said.

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.

“If what was heard yesterday is true, the prime minister cannot serve as prime minister,” said Kadima legislator Otniel Schneller. “But the country cannot be consigned to the whims of the public mood.”

Olmert, whose defence attorneys will cross-examine Talansky in July, has acknowledged receiving money from the New York-based businessman but said the funds were legal election campaign contributions.

—Reuters