JERUSALEM - An American businessman seen as a key witness in the corruption probe of Israeli Prime Minister Ehud Olmert says he handed Olmert cash-stuffed envelopes and suspected some of the money went to fund the Israeli leader's expensive tastes.
Police are investigating whether Olmert illicitly took up to $500,000 from businessman Morris Talansky in illegal campaign contributions or bribes.
Olmert has said the funds were legal campaign contributions and has promised to step down if indicted.
Talansky told an Israeli court Tuesday that most of the money he turned over at meetings in New York and Jerusalem was to cover Olmert's political activities over a 15-year period.
But he also said Olmert's assistant, Shula Zaken, would often ask for cash to cover unidentified personal expenses.
Talansky, a 75-year-old Jewish-American businessman, says there were no records of how that money was spent.
"I only know that he loved expensive cigars. I know he loved pens, watches. I found it strange,'' Talansky told the court, then shrugged.
During Tuesday's questioning, Talansky said much of the money was raised in New York "parlour meetings,'' where Olmert would address American donors who would then leave contributions on their chairs.
All in all, Talansky said, he passed on about $150,000 to Olmert in donations and loans, some or all of which were not repaid.
It was unclear how much of this was his own money, though he said at one point he used his personal credit card to pay a hotel bill.
Talansky said he did not receive any favours in return.
The new revelations are certain to further sully the reputation of the already unpopular Olmert. The investigation is the fifth that police have launched into Olmert's financial affairs since he took office and there is widespread speculation that the savvy former lawyer and mayor of Jerusalem might not be able to weather the latest allegations.
The donations took place before and during Olmert's 10-year tenure as Jerusalem mayor, which ended in 2003, and his subsequent years as trade minister. Olmert became prime minister in early 2006.
Talansky, of Long Island, N.Y., repeatedly voiced his admiration for Olmert, who was a leading politician in the hardline Likud party during the period in question. In late 2005, Olmert bolted the Likud to help form the centrist Kadima party, which he now leads.
"I had a very close relationship with him, but I wish to add at this time at the relationship of 15 years was purely of admiration,'' he added. "I never expected anything personally. I never had any personal benefits from this relationship whatsoever.''
Talansky said Olmert preferred cash over cheques for reasons connected to Likud fundraising regulations. "I didn't really grasp it. I didn't really work out how the system works overall,'' he said.
He also said Olmert asked for a number of loans. Talansky mentioned one loan of $25,000 to $30,000 for a trip to Italy and another loan for $15,000. He said he had asked Olmert to return the second loan as soon as possible, but said he was never repaid. It wasn't clear if Olmert repaid the first loan.
Talansky, who is not a suspect in the case, appeared slightly nervous in the courtroom, which was packed with reporters. He took off his jacket and tie and drummed his fingers on a table.
Since Olmert has not been indicted, Tuesday's testimony was not part of a formal court proceeding against him. Instead, the court was taking Talansky's testimony because he resides in the United States and authorities are concerned he might not return to Israel to testify in the future.
Ahead of the testimony, State Attorney Moshe Lador told reporters not to jump to conclusions and called some media reports "incorrect and irresponsible.''
"There is no decision. We are at the height of the investigation. The case could develop in different directions down the road -- there is a possibility that the whole case could be dropped, and there is also a possibility that another decision will be made in the case,'' Lador said.
Police have said the allegations span a 12-year period. Detectives have raided Jerusalem city hall and the trade ministry and have grilled Olmert twice. Olmert's former law partner and Zaken, his longtime assistant, have also been questioned. The probe is expected to take months.
