Palestinians see peace deal delay if Olmert quits

By Mohammed Assadi

RAMALLAH, West Bank (Reuters) - A Palestinian negotiator said on Wednesday any peace deal with Israel would be delayed if a police investigation of Prime Minister Ehud Olmert forced his resignation and a new election was held.

Saeb Erekat described the case as an internal Israeli matter but said Palestinians were following developments closely.

"If they decide to hold a new election then we will be late another year. If (Israeli Foreign Minister Tzipi) Livni takes over, we will remain the same," Erekat said, referring to Olmert's designated deputy.

The United States, brokering talks on Palestinian statehood that have shown little visible progress since they began nearly six months ago, hopes a deal can be sealed before President George W. Bush leaves office in January.

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. A court gag order is in effect on reporting details of the suspicions.

Olmert allies say right-wing opponents want to scupper his U.S.-brokered talks with the Palestinians. In an Israeli memorial day address in Jerusalem on Wednesday, Olmert spoke of his hopes for peace.

"There is nothing we want more than to end the conflict with our neighbors ... it definitely is not a conflict without a solution, despite all the difficulties and residue of bad feelings," Olmert said.

GAG ORDER