JERUSALEM, (Reuters) – Israeli Prime Minister Ehud Olmert defied a barrage of calls to resign on Friday after he admitted taking cash from an American businessman at the centre of a police inquiry into allegations of bribery.

Olmert, whose departure could disrupt U.S.-sponsored peace negotiations with the Palestinians, continued with his duties after telling the nation in a late-night address on Israel’s 60th Independence Day that he would resign only if the attorney general could produce sufficient evidence to indict him.

The prime minister, who is due to host U.S. President George W. Bush next week, looked relaxed when he addressed Canadian Jewish fundraisers for Israel in Jerusalem on Friday. He made only an oblique, passing reference to his troubles, saying: “I have enough political issues to deal with here.”

“Millions of shekels — cash in hand,” screamed the front page of top-selling tabloid Maariv.

Legal sources say police suspect that Olmert took hundreds of thousands of dollars from a New York Jewish financier. Morris Talansky was tagged “The Laundry Man” in coded records that investigators say were kept by Olmert’s secretary.

Newspapers freed from a gag order on the investigation splashed lengthy coverage of an affair that broke as Israelis celebrated the 60th anniversary of the state’s founding — although some questioned the strength of prosecutors’ case after series of other inquiries that failed to indict the premier. “It is doubtful Olmert can survive,” wrote Nahum Barnea, a senior columnist for Yedioth Ahronoth.”If not because of the Talansky affair, … then because of the cumulative effect of all the ongoing investigations against him.”

In Maariv, commentator Shalom Yerushalmi, noted how Olmert, had told Israelis “I never took bribes, I never took a penny for myself”. The prime minister said the funds from Talansky were campaign donations managed by Olmert’s former law partner.

“Prime Minister Ehud Olmert looked yesterday into the eyes of each and every one of us and asked us to believe him,” Yerushalmi wrote. “If the public could respond collectively it would, of course, ask: Why? For how many years can we hear about your escapades with the police and go on believing you?”

Many Israelis have become used to tales of graft at the top — the son of Olmert’s predecessor Ariel Sharon is in jail at

the moment for raising secret funds for his father’s campaign, but many other investigations have not let to punishment.

Some cited a lack of an obviously popular successor. “Olmert is a slick lawyer and he will get out of this affair as he did in the other cases,” social worker Adam Haisrael, 31, said, adding that he believed Olmert would play up the need for stability in government to talk peace and face up to threats. “He isn’t fit to be prime minister but there’s no one worthy to replace him. They’re all seen as corrupt opportunists.”

Olmert has defended himself against a handful of other inquiries since he became prime minister in 2006.

The right-wing opposition Likud party, which Olmert once represented before bolting to the new, centrist group Kadima, is keen for a snap election that opinion polls suggest it and its leader Benjamin Netanyahu could dominate: “Olmert and the Kadima government have no public legitimacy, no moral legitimacy,” said Likud lawmaker Yuval Steinitz.

A key figure will be Defence Minister Ehud Barak, leader of Olmert’s main coalition ally the Labour party. Barak has so far said little and is believed to be wary of bolting the alliance if that led to an election that would favour Netanyahu. “The party is in a real dilemma,” one Labour figure close to Olmert told Reuters. “I think for now Barak will bide his time.”

If Olmert stepped down, Foreign Minister Tzipi Livni, the chief negotiator with the Palestinians, would be the obvious successor, at least in the short term. “We could probably live with a Livni-led coalition,” the Labour source said. “But whatever happens on this case, there is a sense of an accruing moral attrition that, I anticipate, will force Labour to reshuffle the deck at some point soon.”