Coalition ally demands Olmert step down

By Jeffrey Heller

JERUSALEM (Reuters) - Ehud Olmert's main coalition partner demanded on Wednesday the Israeli prime minister leave office over corruption allegations.

Olmert made clear through his aides that he was staying on. The furor surrounding the unpopular premier threatens to derail peace talks with the Palestinians.

Defense Minister Ehud Barak issued the call -- and raised the prospect of an early election -- a day after a U.S. 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 Labor 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 has denied wrongdoing in the case and his strategic adviser, Tal Silberstein, said the premier was staying.

"The prime minister was not considering resigning, nor taking a leave of absence, nor any of the other suggestions raised at that press conference (by Barak)," he said.

"I can tell you that the press conference changed nothing," Silberstein said on Israel's Channel 10 television.

Olmert has ridden out similar storms since taking office in 2006 and Barak was hazy 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 defeat Labor.

Barak spelled out Olmert's options as "suspension, vacation or resignation or declaring himself incapacitated".

"We will not be the ones to determine this," he added.

A poll by Channel 2 television found 43 percent of Israelis wanted Olmert to take a leave of absence, 39 percent favored resignation, and 13 percent backed him staying on.

"HOT AIR"

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