Uncertainty grows over Olmert's political future

JERUSALEM (Reuters) - An Israeli court kept a lid on Tuesday on details of a police investigation that has raised speculation Prime Minister Ehud Olmert may be forced to quit -- a move that would disrupt peace talks with the Palestinians.

With uncertainty mounting over Olmert's political future, a Jerusalem District Court said it would allow local media to report only that a request had been filed by prosecutors to take testimony from a foreign national in connection with the case.

Israel-based media, hit last week by a sweeping gag order, published links to the New York Post website (www.nypost.com), where Israelis could read of a "bribery scandal" relating to Olmert's time as mayor of Jerusalem in the 1990s.

Lawyers advised Reuters it could face prosecution in Israel if it reported details of the case that it has uncovered.

Already the focus of a series of corruption scandals in which he has denied any wrongdoing, Olmert was interrogated at short notice by police on Friday over fresh allegations.

The affair may cast a shadow over next week's visit by U.S. President George W. Bush to mark Israel's 60 years of statehood.

"Suspicions are being investigated about the conduct of a serving prime minister," Olmert's lawyer, Eli Zohar, told reporters. Citing the gag order, he declined to elaborate.

Olmert has lashed out publicly at what he called "malicious and vicious rumors" surrounding the case and said he had cooperated with police who questioned him.

Allies say right-wing opponents want to scupper his U.S.-brokered talks with the Palestinians.

A court in Tel Aviv on Tuesday rejected a petition by Israeli media outlets to revoke the ban on reporting.

Israel's state prosecutor, Moshe Ledor, told journalists the gag order was unlikely to be lifted before the country celebrated its 60th Independence Day on Thursday.

At a separate hearing on Tuesday in which it confirmed the existence of a foreign witness in the case, the Jerusalem court said: "This does not mean an indictment will be filed against the respondents, Prime Minister Ehud Olmert and Shula Zaken."

Zaken, Olmert's long-time personal assistant, is under house arrest and has been questioned several times by police. Her lawyer told reporters no approach had been made to her to act as a witness for the prosecution.

PEACE PROCESS

U.S. officials have privately said they are taking the investigation seriously given its possible ramifications for a peace process that has already experienced significant setbacks.

Washington hopes that Olmert and Palestinian President Mahmoud Abbas can reach at least a framework peace deal before Bush leaves office in January. Bush has been expecting to discuss the state of negotiations with Olmert next week.

Political sources said Olmert's top coalition ally, Defense Minister Ehud Barak, does not expect him to survive the investigation and is eyeing a run for top office.

But they said that Barak, whose centre-left Labor party now shores up Olmert's centrist Kadima in the ruling coalition, was unlikely to bolt and trigger early elections for fear they would be won by right-wing former premier Benjamin Netanyahu of Likud.

Israel is not due to hold a general election until 2010.

Barak, also a former prime minister, told Israel Radio that Olmert, like any suspect, was innocent until proven guilty.

If Olmert did step down, Kadima could name a successor from within its own ranks. The likely frontrunner would be Foreign Minister Tzipi Livni, who is also the chief peace negotiator.

(Editing by Alastair Macdonald)