Olmert loses first legal challenge in bribery case

By Jeffrey Heller

JERUSALEM (Reuters) - Israeli Prime Minister Ehud Olmert lost his first court challenge on Tuesday against a bribery investigation that could force him from office.

The Supreme Court, rejecting Olmert's petition, cleared the way for a lower court to hear preliminary testimony from a U.S. businessman who prosecutors said handed the veteran politician cash-filled envelopes before he became prime minister.

Before the three-justice panel announced its decision, police said they planned to question Olmert for a second time, on Friday.

Olmert has denied any wrongdoing but said he would resign if indicted in the corruption investigation, a move that could trigger an early election in Israel and likely disrupt U.S.-brokered peace talks with the Palestinians.

Police, who first questioned Olmert on May 2, have said he is suspected of taking "significant sums of money from a foreigner or a number of foreign individuals over an extended period of time".

Prosecutors can now summon businessman Morris Talansky to a Jerusalem District Court to provide testimony in the case, before the New York resident, who is currently visiting Israel, returns to the United States next week.

Israel Radio said Talansky would appear in the district court on Sunday.

Olmert's attorneys had tried to persuade the Supreme Court that such testimony, at an early stage of the investigation, would impinge on Olmert's right to a fair trial by effectively indicting him before any formal charges were brought.