By Dion Nissenbaum | McClatchy Newspapers

JERUSALEM
— Embattled Prime Minister Ehud Olmert announced Wednesday that he will
resign in September, bringing a premature end to his hopes of leading
Israel into a stable era of peace with its Arab neighbors.
Facing a deepening political corruption investigation, Olmert said he
would step aside when his ruling Kadima Party chooses a new leader in
seven to eight weeks.
Olmert
made it clear that he was reluctantly stepping aside because the
expanding corruption allegations had undermined his ability to lead the
nation.

"I
am not doing this because I cannot fulfill my responsibilities," Olmert
said in a short, live televised address from his Jerusalem home.
"I
believe with all my strength in my ability to continue in my mission,
just as I believe in my righteousness and my innocence," he argued.
"But this campaign of mudslinging occurring these days, even on the
part of fair people who are truly worried about the state and its
reputation, raises questions that I cannot and do not wish to avoid."
Olmert's
decision will make it much harder for him to cement a legacy by
securing landmark peace deals with Syria or the Palestinians before he
leaves office.
"He is a lame duck and this curtails his ability
to do anything really dramatic in the areas of war and peace," said
Yossi Alpher, a former Israeli Mossad official who now serves as
co-director of the bitterlemons.org political Web site.
Hopes of
reaching peace deals by year's end were already a long shot, even
before Olmert announced he would step aside. Now it is all but certain
that the job will be left to his successor.
His announcement came
as Secretary of State Condoleezza Rice met in Washington with top
Israeli and Palestinian negotiators, including Tzipi Livni, Israel's
popular foreign minister, and a candidate to succeed Olmert. Talks,
re-launched at the Annapolis conference last November, appear to have
made some progress, but the sides have revealed few details, and no
breakthrough on key issues appears imminent.
Although Israeli,
Palestinian and U.S. officials pledged Wednesday to continue
negotiations, a deal is unlikely. Standing in the way are Olmert's weak
standing, Israeli political upheaval that could last into October or
beyond and emotional issues such as the status of Jerusalem, the fate
of Palestinian refugees and the future of Jewish settlements.
Calls
for Olmert to resign increased in May after American businessman Morris
Talansky told Israeli police that he had given the Israeli leader tens,
if not hundreds, of thousands of dollars in cash over the last 15 years.
Earlier
this month, new allegations emerged that Olmert had double-billed
companies and non-profit groups for travel and then used the money to
pay for family vacations.
In his address, Olmert apologized for
making unspecified mistakes in his career. But he blasted
"self-proclaimed righteous fighters" who had staged "wicked attacks"
meant to bring him down.
"Whoever is preaching morals to me today
will need to one day face the truth as it rises to face them," Olmert
said before leaving without taking questions from assembled reporters.
"I
don't think this is cataclysmic," said Hanan Ashrawi, a moderate
Palestinian lawmaker who served as part of the late-Yasser Arafat's
negotiating team in the early 1990s. "I don't think Olmert was the
great hope for peace and I don't think his resignation is the end of
peace."
While Olmert battles the corruption allegations, Kadima Party leaders will be fighting for the right to take his place.
Olmert's
most likely successor in Kadima is either Livni or Shaul Mofaz, the
country's more hawkish transportation minister and former defense
minister.
Livni is currently favored in polls by Israeli voters
and members of the Kadima Party. But Mofaz is believed to be favored by
Olmert, who has a frosty relationship with Livni and could make it hard
for her to rise as Israel's second female prime minister.
The
Kadima Party is scheduled to hold its first vote to choose a new leader
on Sept. 17, with a second round scheduled a week later.
Once
Olmert resigns, Israeli President Shimon Peres will have a week to name
someone, probably the new Kadima leader, to form a new coalition
government.
That person would then have up to 42 days to
establish a new coalition. If the attempt failed, Israel would be
thrown into elections within three months.
That could open the
door for former Israeli Prime Minister Benjamin Netanyahu, the
hard-line Likud Party leader who opposes peace talks with Syria and the
Palestinians, to return to office.
Latest polls show Likud and a Kadima Party led by Livni in a dead heat among Israeli voters.
Olmert
first took over as acting prime minister in January 2006 when Ariel
Sharon suffered a devastating stroke from which he never recovered.
Two
months later, Olmert led the newly created Kadima Party to a modest
victory in elections. Olmert formed a center-left government with the
Labor Party that was almost immediately tested when Hezbollah fighters
in Lebanon captured two Israeli soldiers in a July 12, 2006
cross-border raid.
Olmert launched a costly 34-day war that
failed to bring the soldiers home, emboldened Hezbollah in Lebanon and
fatally damaged the prime minister's image at home.
(Warren P. Strobel in Washington and McClatchy special correspondent Cliff Churgin in Jerusalem contributed to this article.)