A new turn in a bribery case is threatening to topple Israel's embattled prime minister.  The political crisis is overshadowing peace efforts, as we hear from Robert Berger at the VOA bureau in Jerusalem.

Israeli Defense Minister Ehud Barak called for Prime Minister Ehud Olmert to step down after incriminating testimony in a corruption scandal.

Barak said the Prime Minister could not function after an American Jewish businessman said he gave Mr. Olmert envelopes stuffed with cash to support a lavish lifestyle.  Prosecutors suspect that the businessman, Morris Talanksy, gave Mr. Olmert up to $500,000 over a 15-year period when he was a Cabinet minister and mayor of Jerusalem.

The Prime Minister says the money was for campaign contributions, but Talanksy testified that some of it was for a lavish lifestyle, including expensive cigars and hotels and flying first class.

Shocked by these allegations, Defense Minister Barak issued an ultimatum.

He said if Mr. Olmert does not step down, he will pull his Labor Party out of the coalition government and force early elections.

Mr. Olmert's aides say he is innocent until proven guilty, and therefore, he will not resign.

But even if he hangs on to power, many wonder how a weakened prime minister can conduct fruitful peace talks.  Israel recently resumed negotiations with Syria after an eight-year break and Mr. Olmert is trying to reach a peace agreement with the Palestinians by the end of the year.

The Palestinian Authority in the West Bank issued a statement saying that the political crisis in Israel will have a "negative impact" on the peace process.