Aug. 3 (Bloomberg) -- Israeli Foreign Minister Avigdor Lieberman denied any wrongdoing as police recommended he be charged with fraud, bribery, money laundering, obstruction of justice and breach of trust.

Lieberman, whose Yisrael Beitenu party is the second largest in the coalition government, said there was “no basis” for the police recommendation.

“For 13 years the police have conducted a campaign against me, and as my political power and the power of Yisrael Beitenu has risen, so have the efforts to remove me from public life,” Lieberman said in a statement e-mailed by his office.

The recommendation was made to the State Prosecutor’s Office and Attorney General Menachem Mazuz, police said in an e- mail. Mazuz and the state prosecutor will decide whether to indict Lieberman -- a move that could lead to the reshaping of the coalition led by Prime Minister Benjamin Netanyahu’s Likud party.

“If the attorney general accepts the police recommendation to indict Lieberman, it would be a major embarrassment for the government,” said Gerald Steinberg, a political scientist at Bar Ilan University near Tel Aviv. “It could give Netanyahu an opportunity to bring Kadima into his government.”

The centrist Kadima party refused to join the government because it said Netanyahu wasn’t committed to a two-state solution to the Israeli-Palestinian conflict. In a June 15 speech, Netanyahu said he would accept a Palestinian state under certain conditions.

Lieberman, like Netanyahu, was critical of the way in which the Kadima-led government of Ehud Olmert handled peace talks with the Palestinians.

Police Investigations

The Moldovan-born Lieberman, 51, has been the subject of police investigations for more than a decade. His daughter and six party associates were arrested in January on suspicion of illegal money transfers.

Yisrael Beitenu Cabinet members include Minister of Public Security Yitzhak Aharonovitch, who oversees the police.

Lieberman last year said that Egypt is “waiting for the right moment to attack” the Jewish state, and Egyptian President Hosni Mubarak can “go to hell” if he doesn’t want to visit Israel.

He has accused Israeli Arabs of treason and demanded that they take a loyalty oath. Israeli Arabs constitute about 20 percent of the nation’s population of 7.41 million people.

Arabs Evicted

Police said yesterday that officers evicted Arab families from houses on a site in east Jerusalem where there are plans to build Jewish homes.

The eviction from the site known as Shepherd Hotel in the Sheikh Jarrah neighborhood came after the High Court of Justice ruled that the Arab families were living there illegally and confirmed that the buildings belonged to Jewish families, police spokesman Micky Rosenfeld said by telephone.

The U.S. State Department has asked Israel to halt the building project, which has been condemned as a threat to Israeli-Palestinian peace prospects by the French government, the European Union and Palestinian Authority President Mahmoud Abbas.

Netanyahu said at a July 19 Cabinet meeting in response to the U.S. criticism that Israel wouldn’t tolerate any restrictions on Jews buying property or living in Jerusalem.

Israel captured east Jerusalem from Jordan in the 1967 Middle East War and later annexed it as part of the country’s capital, in a move never internationally recognized. The sector includes the walled Old City, home to sites holy to Judaism, Christianity and Islam.

The British Consulate yesterday issued a statement that called the east Jerusalem eviction “appalling” and “incompatible with Israel’s professed desire for peace.”

Robert Serry, United Nations special coordinator for the Middle East peace process, said in an e-mailed statement that Israel should reverse such “provocative and unacceptable actions in east Jerusalem.”

To contact the reporters on this story: Calev Ben-David in Jerusalem at cbendavid@bloomberg.net; Gwen Ackerman in London at gackerman@bloomberg.net.

Last Updated: August 2, 2009 21:24 EDT