May 29 (Bloomberg) -- Israeli Prime Minister Ehud Olmert will fight for his political life, resisting calls to resign amid a police probe of allegations he took money illegally, a political aide and the finance minister said.

The prime minister can continue to govern even after U.S. businessman Morris Talansky told a Jerusalem court he transferred about $150,000 to Olmert over almost two decades, sometimes in cash-filled envelopes, Finance Minister Ronnie Bar- On said on Channel Two television late yesterday.

``He can, especially since he has made a public commitment that if there is an indictment, he will resign,'' Bar-On said, adding that Olmert will ``fight'' to remain in office because he believes the allegations won't hold up in court. Olmert, 62, denied in a May 8 statement that he took bribes and described the funds as campaign contributions.

Defense Minister Ehud Barak, leader of Olmert's biggest coalition partner, yesterday called on the premier to step aside or face elections. The current probe, one of five into the prime minister's affairs since he took office, comes as Olmert pursues peace talks with the Palestinians and Syria. He travels to Washington next week to meet President George W. Bush.

Olmert Report

In meetings with his Kadima party, Olmert said he had been done an injustice and the probe did not require his resignation, the daily Haaretz said, citing people in the meetings. He also said that he will be able to refute all the allegations against him and prove his innocence, the paper added.

``We've had over the past two years more than one case of `this is the beginning of the end,''' Bar-On said.

The collapse of Olmert's government would likely cost Barak, the Labor Party leader, the defense post. The opposition Likud Party and its leader, former Prime Minister Benjamin Netanyahu, lead in public opinion polls.

``I don't think the prime minister can simultaneously run the government and deal with personal issues,'' Barak said, adding that if Olmert declines to step down and his Kadima Party doesn't oust him, Labor would seek new elections.

Olmert's political adviser Tal Silberstein said on Channel 10 television that the prime minister didn't intend to step down before Barak called on him to do so and won't do so now.

Shaky Coalition

Labor's departure from Olmert's coalition would leave the government with 48 seats in the 120-parliament and force its downfall, leading to early elections. Netanyahu led Olmert by almost a 4-to-1 margin in a poll published on May 12 in the daily Yediot Ahronot. Thirty-seven percent preferred Netanyahu, while 20 percent backed Barak and 10 percent supported Olmert.

Netanyahu has already said Olmert should quit. Opposition lawmaker and former Likud Foreign Minister Silvan Shalom said yesterday elections should be scheduled for November.

Legally, Olmert doesn't have to resign unless convicted, and the government needn't hold elections until 2010.

Olmert could take a 100-day leave of absence due to an ``inability to govern,'' during which Foreign Minister Tzipi Livni, as deputy prime minister, would fill in. If he quits, Kadima could appoint Livni as premier and avoid early elections.

It's not the first time the prime minister has been pressured to quit. A year ago, Livni called on him to resign after a government panel criticized his management of the 2006 war against the Hezbollah militia in Lebanon. Olmert and Livni later agreed to keep working together.

A poll conducted by Channel Two found that 43 percent of those questioned believed Olmert should suspend himself from his post while 39 percent said he should resign. Thirteen percent said they wanted him to remain in office, according the survey broadcast late yesterday. Channel Two didn't say how many people were polled or provide a margin of error.

Talansky Testimony

Olmert hasn't commented since Talansky's May 27 testimony to the Jerusalem District Court.

The businessman said he provided a loan to Olmert of between $25,000 and $30,000 for a vacation to Italy, according to a pool report by the Associated Press. He also gave Olmert $68,000 or $70,000 in 2003 after the politician solicited funds for his campaign, according to the report. The Jerusalem Post cited Talansky as testifying the loan was never repaid.

In addition to the current investigation into whether Olmert took money illegally while serving as Jerusalem mayor from 1993 to 2003 and as minister of industry and trade from 2003 until he was elected prime minister in 2006, the premier is being investigated over accusations he bought a Jerusalem house at a below-market price in exchange for helping a building contractor.

He also faces probes over allegations he favored associates in awarding jobs and financial aid when he was industry and trade minister. He has denied any wrongdoing.

To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net; David Rosenberg in Jerusalem at drosenberg1@bloomberg.net

Last Updated: May 29, 2008 04:21 EDT