JERUSALEM - Embattled Prime Minister Ehud Olmert suffered a new blow Sunday when his finance minister agreed to temporarily step down while police investigated embezzlement allegations against him.
The announcement was the latest scandal to hit Olmert's government and robbed the prime minister of a key ally ahead of the release of a potentially explosive government report on last summer's war in Lebanon. The report, expected to be released next week, could determine Olmert's political fate.
Media reports said that Finance Minister Avraham Hirchson was suspected of failing to report embezzlement committed under his watch -- and may have taken some money himself -- when he headed a workers' union in 2003. Hirchson has undergone several rounds of police questioning.
Hirchson's lawyer, Yaakov Weinrot, said Sunday that his client would step down for three months while the proceedings against him continue. Olmert is to hold the finance post for the time being, officials said.
The accusations are only the latest in a series of scandals plaguing the Israeli leadership.
Olmert is under investigation about real estate deals and sale of a state-owned bank. His former justice minister is performing 120 hours of community service after he was convicted of sexual misconduct for forcibly kissing a young female soldier.
Israel's attorney general has announced his intention to indict President Moshe Katsav on charges of rape, sexual assault and fraud. The cases all involve women who worked for Katsav while he was president and a Cabinet minister.
Katsav, who denies all wrongdoing, has suspended himself from the ceremonial position.
Police also questioned Cabinet Minister Avigdor Lieberman on Sunday over a bank account in Cyprus.
Olmert is deeply unpopular following last summer's inconclusive war against Hezbollah guerrillas in Lebanon.
Next week, a government panel investigating the leadership's handling of the war is expected to announce its preliminary findings. The Haaretz daily reported Sunday that the report will include harsh criticism of top government and military officials.
The war began July 12 after Hezbollah guerrillas crossed into Israel and captured two Israeli soldiers. During 34 days of fighting, Israel failed to meet its main objectives of returning the soldiers and destroying Hezbollah. Israel also failed to halt Hezbollah from firing some 4,000 rockets into Israel, while troops returning from battle complained of poor preparation and lack of food and key supplies.
Nearly 160 Israelis, including 119 soldiers, died in the conflict, according to Israeli officials.
The Israeli public has largely blamed Olmert and Defense Minister Amir Peretz for mishandling the war, and there is widespread speculation that a tough report could force both men to resign. The harsh criticism already has led to the resignation of the country's former military chief and other top officers.
In a radio interview Sunday, Olmert defended his performance. He acknowledged the war was painful but succeeded in changing "the rules of the game" in the region. He said Israel inflicted heavy damage on Hezbollah, and welcomed the arrival of international peacekeepers in southern Lebanon.
"At this moment the northern border is totally quiet," he said. "The main goal we wanted to achieve, changing the equation, I think it was achieved but at a very heavy price."
He also said Israel would learn from its errors and would continue its quiet efforts to secure the return of the captured soldiers, who have not been seen or heard from.
Olmert spoke in a special interview ahead of Israeli Independence Day on Tuesday.
In the interview, he said the time was not yet ripe for peace negotiations with Syria as long as Syrian President Bashar Assad supported Palestinian militants and contributed to the destabilization of Lebanon.
"We want to have peace with every Arab state, including Syria," he said. "But it is not enough to say publicly 'I want peace,' you have to act on this."
He noted that several past peace negotiations have broken down, but said if conditions in the region changed Israel "will not miss that chance" for peace.
