Despite his vows to overcome corruption allegations and to work with the Bush administration to conclude a Middle East peace deal, Israeli Prime Minister Ehud Olmert bowed to the inevitable Wednesday.

In an angry, nationally televised statement, Olmert announced he would resign after his party chooses a new leader in September. But the mortal political blow came in May, when U.S. businessman Morris Talansky testified in an Israeli court that he had given Olmert thousands of dollars in cash-stuffed envelopes and that Olmert had been "the guest of my credit card."

Olmert's announcement plunged Israeli politics into turmoil. His possible successors in the Kadima party began jockeying for advantage, opposition politicians called for new elections and questions were raised about the implications for efforts to broker an Arab-Israeli peace and counter a possible security threat from Iran.

Lashing out at his accusers, Olmert said he had been subject to "vicious attacks" virtually from the moment he took office by "self-styled fighters for justice who were seeking to oust me," and he promised "to prove my innocence" after stepping down.

The one-time Jerusalem mayor, who inherited Israel's leadership when former Prime Minister Ariel Sharon suffered a stroke in 2006, had been actively pursuing peace negotiations with the Palestinians and conducted indirect talks with Syria in the last few months through Turkish mediators.

The Israelis and Syrians, in dispute over the strategic Golan Heights, captured by Israel in the 1967 Six-Day War, hadn't been engaged in talks since negotiations broke down in 2000. While the new initiative raised hopes for progress in resolving that conflict, critics suggested that Olmert's involvement in peace diplomacy was meant to distract attention from his domestic troubles.

In his statement on Wednesday, Olmert insisted that the talks with the Syrians and Palestinians were "closer than ever" to succeeding.

The Bush administration has been pushing for a Palestinian-Israeli accord by the end of the year. But Olmert has expressed doubts about that possibility, and it is unclear how his imminent departure might impact on the process.

Foreign Minister Tzipi Livni, Olmert's deputy in the centrist Kadima faction, is the leading candidate to replace him when party primaries are held Sept. 17. She is the chief Israeli negotiator with the Palestinians and would likely continue those talks along the same lines charted so far.

Yet if a new Kadima leader is unable to form a government, early elections could be held, a process that could take several months — with opposition leader and former Prime Minister Benjamin Netanyahu of the rightist Likud party and Labor leader Ehud Barak, the defense minister and another former prime minister, joining the fray.

Whatever the political outcome, the turmoil following Olmert's departure is likely to put peace efforts on hold until a new government emerges.

With Israel preoccupied with internal politics, conditions will likely not be conducive to progress in talks with either the Palestinians or the Syrians, or to any decision on possible action against Iran, whose nuclear program is viewed in Israel as a mounting threat.

Pledge to carry on

Olmert pledged that in his remaining weeks in office he would carry on with efforts "to bring the negotiations between us and our neighbors to a successful conclusion."

A White House spokesman, Gordon Johndroe, said President George W. Bush talked to Olmert on Wednesday before he announced his decision. Johndroe said that "we will continue to work on a deal before the end of the year."

Yet Olmert's departure opens the field to contenders with more hawkish views.

Within Kadima, Livni's strongest challenger is Shaul Mofaz, a former army chief of staff who has warned that Israel would attack Iran if it persisted with its alleged efforts to build a nuclear weapon.

Netanyahu, remembered for his tough stance in the Oslo peace process while prime minister from 1996 to 1999, has been sharply critical of Olmert's peace moves. He would pose a stiff challenge in an election, with polls showing him as the favored candidate. A snap poll taken by Israel's Channel 10 after Olmert's announcement showed Netanyahu ahead of Livni.

Barak is also trying to stage a political comeback, and may seek an election run despite poor showings in public opinion polls. He called Olmert's decision to step down "a proper and responsible decision, made at the right time."

A spokesman for Palestinian President Mahmoud Abbas called Olmert's move "an internal Israeli matter."

"The Palestinian Authority deals with the prime minister of Israel, regardless if he is Olmert or somebody else," said the spokesman, Nabil Abu Rudeineh. "The concern of the Palestinian Authority is to have an Israeli prime minister who is committed to peacemaking."

An about-face

Olmert's announcement was an unusual about-face for the tenacious political veteran who had weathered several corruption probes.

He had previously asserted his determination to stay in office, saying he would resign only if a decision was made to indict him. He even suggested he might run in the Kadima primary, though party leaders, seeing him as a political liability, had already launched a succession battle.

Olmert's upcoming departure caps a tumultuous 21/2 years in office.

After stepping in to replace Sharon, Olmert won subsequent elections but stumbled badly when a war he launched in 2006 in response to a cross-border capture of two Israeli soldiers by Hezbollah guerrillas in Lebanon ended inconclusively.

The campaign's declared goals of smashing Hezbollah and recovering the soldiers were not achieved, and rockets rained down on northern Israel until the last day of the fighting.

An official inquiry subsequently found that Olmert had made a hasty decision to go to war, without properly weighing other options, and that the conduct of the monthlong campaign was seriously flawed.

The testimony by Talansky about cash transfers to Olmert in years before he became prime minister seriously damaged what remained of Olmert's public credibility, with polls showing that relatively few Israelis believed his assertion that the funds were purely campaign contributions.

In what proved to be the last straw, Israeli law enforcement officials announced this month that they were investigating suspicions that Olmert had billed multiple organizations for the same flights and hotel stays, deepening public disenchantment with his leadership.

Even as he announced that he would step down, Olmert remained defiant.

"Did I make mistakes in my work of many years? Definitely yes, and I am sorry about them," he said. "But is the picture presented to the public true? Absolutely not!"