Olmert's vow to quit shakes peace talks

By Allyn Fisher-Ilan and Adam Entous

JERUSALEM (Reuters) - Middle East peacemaking was in turmoil on Thursday after Ehud Olmert, dogged by corruption probes, said he would resign as prime minister after his party picks a new leader in September.

Israeli politicians and analysts said Olmert's surprise announcement could force an early national election which opinion polls show could be won by rightist leader, Benjamin Netanyahu.

"I have decided I won't run in the Kadima movement primaries, nor do I intend to intervene in the elections," Olmert said, referring to his ruling centrist party, from his official residence in Jerusalem.

"When a new (Kadima party) chairman is chosen, I will resign as prime minister to permit them to put together a new government swiftly and effectively," Olmert said.

Olmert, who could stay on as a caretaker prime minister for months while a successor struggles to cobble together a new coalition, vowed not to "ease up" on peacemaking "for as long as I remain in office."

The White House said its goal of getting Olmert and Palestinian President Mahmoud Abbas to reach a peace deal this year was unchanged. Palestinian negotiator Saeb Erekat said the negotiations would continue despite Olmert's announcement.

But as an outgoing leader Olmert would lack the political strength to make critical decisions in U.S.-backed peace talks with the Palestinians or in indirect negotiations with Syria, which already show no signs of being close to any breakthrough.

Yasser Abed Rabbo, an aide to Abbas said: "We are sorry for the decision but this is the Israeli system."

Israeli media said Olmert informed U.S. President George Bush of his decision beforehand, considering the repercussions it could have on peace talks.

POLITICAL UNCERTAINTY

Olmert's decision also plunged Israel's fractious political system into uncertainty, even as he faced weeks of public pressure to resign over probes of suspicions he took bribes from an American businessman, and double-claimed for travel expenses.

Olmert has denied any wrongdoing, and vowed in his statements on Wednesday to fight for his innocence.

Some Israeli politicians called for parliament to move up a national election currently scheduled for 2010, or speculated that an early poll was likely.

"Parliament should disperse and we should hold a new election," Limor Livnat, a lawmaker for the right-wing Likud party, said.

Defence Minister Ehud Barak, head of the left-of-centre Labor party and Olmert's largest coalition partner, told CNN that it was "not yet clear whether there will be election in three or four months from now," if Olmert steps down.