jerusalem -- Israel's attorney general ordered police Monday to open a criminal probe into suspicions that Prime Minister Ehud Olmert received a $330,000 discount on the price of a home in return for favors to the contractor who sold it to him.
The decision prompted calls by the opposition for the unpopular leader, already under investigation in another corruption case, to step down. Analysts said his weakened standing would limit his ability to negotiate peace with the Palestinians, a top priority for the Bush administration.
Olmert's office declared his innocence, insisting in a statement that the purchase of the home was "made honestly, ethically and for an appropriate price." It described the investigation as "uncalled for" but said Olmert would cooperate with it "in order to bring it to an end as quickly as possible."
The prime minister would have to resign if Atty. Gen. Menachem Mazuz decides to indict him. Such an outcome could involve months of legal maneuvering.
In the meantime, Olmert is intensely engaged with Palestinian Authority President Mahmoud Abbas in a U.S.-backed effort to revive full-scale peace talks, which broke down in 2001. President Bush has called a peace conference for this fall to advance the effort.
The process is politically risky for Olmert. On Sunday he had to cajole the Cabinet, over objections from right-wing parties in his broad governing coalition, to approve the release of 90 Palestinian prisoners as a goodwill gesture.
Monday's Justice Ministry announcement of the new investigation brought sniping from the opposition against Olmert and the peace process.
"No other proper country would allow a prime minister to continue serving his term under a bundle of criminal investigations," said Zevulun Orlev, a member of parliament from the right-wing National Religious Party.
"Instead of dealing with gestures to the Palestinians and releasing terrorists from jail, the prime minister should wish the people of Israel a good year and suspend himself immediately," he said.
Yossi Beilin, a lawmaker from the leftist Meretz Party and a former peace negotiator, said the attorney general's decision put "a large question mark over Olmert's ability to fulfill the most important task Israel now faces."
Olmert and his government have been tainted by corruption allegations for most of their 16 months in office. The finance minister resigned in July to face charges of fraud, theft and money laundering during his days as chairman of a professional union. The head of the Israel Tax Authority, his predecessor and a top aide to Olmert were arrested in January in an investigation of possible influence peddling and bribery at the tax office.
Police have been investigating for months whether Olmert, as finance minister, in 2005 tried to influence the sale of the government's controlling interest in Israel's second-largest commercial bank, Bank Leumi, to benefit two associates.
The case put under police investigation Monday involves Olmert's 2004 purchase of a home in Jerusalem's upscale German Colony when he was trade and industry minister. The previous year he had finished a decade as the city's mayor.
The investigation will look into suspicions reported in the Israeli media that associates of Olmert helped Alumot MG Engineering Ltd., the Jerusalem property developer that sold him the house, obtain irregular construction permits from City Hall, sharply increasing the company's profits.
Israeli media reports say Olmert paid $1.2 million in cash for the house.
The state comptroller's office, Israel's government watchdog, first looked into the deal and gave its findings to the attorney general.
It said Olmert got a $480,000 discount for the purchase, $330,000 more than he would have received at the market rate for cash buyers.
By taking up the case, the attorney general endorsed the comptroller's call for a police investigation, dealing Olmert an added setback. The prime minister had accused State Comptroller Micha Lindenstrauss of waging a personal campaign against him.
Previous Israeli prime ministers have been the subjects of police investigations without being charged. But these two inquiries are particularly debilitating for Olmert, whose popularity ratings plunged into the single digits after last year's cross-border war against Hezbollah guerrillas in Lebanon.