The scandal enveloping Prime Minister Ehud Olmert could force him from power and throw Israel's fractious political system into turmoil, the AP reported.
If Olmert exits and his government falls, polls indicate that hard-liner Benjamin Netanyahu and his Likud Party are well-positioned to take power. That would likely have serious implications for the government's efforts to negotiate peace deals with the Palestinians and with Syria.
On Wednesday, one of Olmert's key coalition partners, Defense Minister Ehud Barak, said Olmert had to step aside, and he threatened to topple the coalition and go to new elections if he doesn't.
Barak's ultimatum left Olmert with three options:
Olmert could still hang on. A canny and capable politician, he has already weathered scandals: The new police investigation is the fifth opened into his affairs since he was elected, and he was widely seen to have botched Israel's 2006 war in Lebanon. In the aftermath of that war, Barak issued an ultimatum similar to the one he issued Wednesday but never followed through.
Polls show a poor performance for Barak and his Labor Party if elections are held now, a factor working to keep him in the government. If Barak does carry out his threat to leave and new elections are held, polls show a victory for the Likud.
Olmert could decide to save his coalition government by stepping aside temporarily. In that case, the country's top job would go to his deputy, Foreign Minister Tzipi Livni. A member of Olmert's Kadima Party, the popular Livni would serve as a caretaker and try to keep the coalition together until Olmert officially steps down or is vindicated and returns.
Olmert could officially resign. He has said he would resign if indicted, and if that happens, his government falls. Israel's president, Shimon Peres, then would select a lawmaker from Kadima - probably Livni - and give her a chance to form a new government without new elections.
But Livni faces other rivals for the Kadima leadership who will certainly try to oust her once Olmert is gone. Her closest opponent is Shaul Mofaz, a former army chief of staff.
If Kadima fails, other parties, including the Likud, could try to cobble together a coalition out of the remnants of Olmert's government. If none of those attempts succeed, the country could hold new elections, currently scheduled for 2010.