Israel's Olmert tussles with government watchdog

JERUSALEM, July 25 (Reuters) Israeli Prime Minister Ehud Olmert clashed with the government's corruption watchdog today, rejecting accusations he had acted improperly while industry minister and trade minister in 2003.

The televised tussle between Olmert and former judge Micha Lindenstrauss, the state comptroller, was a riveting reminder of the string of corruption scandals plaguing the Israeli leader as new Middle East peace diplomacy gathers speed.

Thumping the table with his fist, Olmert told parliament's State Control Committee he had done no wrong by becoming involved in the approval of financial grants to a factory in southern Israel in 2003.

In a scathing report in April, Lindenstrauss accused the prime minister of a conflict of interest -- noting that Olmert's personal attorney represented the factory's owner in promoting the industrial project in the town of Dimona.

The comptroller has recommended police open an investigation.

Attorney-General Menachem Mazuz is to decide within several months whether to order them to do so.

''You cannot move things as a minister for a friend who approaches you, you have to disqualify yourself,'' Lindenstrauss chided Olmert at the committee session.

Olmert, calling the comptroller's findings ''detached from reality'', said he had told officials in his ministry: ''Discuss (the factory's) request and decide what you will, but make a decision.'' Taking aim at Lindenstrauss, Olmert snapped: ''State auditing turned into a circus long ago.'' DEALS In a separate investigation, Lindenstrauss has asked Mazuz to take over a probe into Olmert's purchase of a house in 2004 for 1.2 million dollars on suspicion he bought it at a big discount while serving as a cabinet minister.

Olmert has denied any wrongdoing in the real estate deal or in another case under investigation focusing on whether he promoted the interests of two businessmen with whom he was friendly in the state sale of a major bank in 2005.

Last week, a state comptroller's report said Olmert and his deputies ''failed gravely in decision making'' by not considering how Hezbollah rockets could paralyse northern Israel when it launched a war against the Lebanese guerrilla group a year ago.

Olmert's office responded by detailing efforts the government has since made to improve emergency readiness.

The prime minister's popularity has already plummeted over public criticism of the military's failure to crush Hezbollah. But he maintains a large parliamentary majority and a general election is not due until 2010.

On the political horizon, however, are the final findings -- still months away -- of a state commission investigating how Israeli leaders and generals handled the war.

Olmert rebuffed calls for his resignation three months after the panel issued an interim report accusing him of ''a serious failure'' in deciding to go to war against Hezbollah following its abduction of two Israeli soldiers in a cross-border raid.

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