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The Supreme Court Tuesday rejected Prime Minister Ehud Olmert's bid to block a key witness from giving a deposition in a corruption probe against him.

The court said it saw no reason to delay the testimony by Jewish American businessman Morris (Moshe) Talansky and reaffirmed the Jerusalem District Court's ruling over the same petition.

Olmert is suspected of having illicitly received up to U.S.$500,000 from Talansky. Both deny the allegations against them.

The ruling delivered a blow to Olmert's defense, as he battles several corruption cases that have threatened to depose him and derail fledgling peace talks with the Palestinians.

Police have said the latest alleged corruption case spans a 12-year period, when Olmert was mayor of Jerusalem and minister of industry and trade. Detectives raided Jerusalem city hall and the ministry last week, seizing documents in connection with the investigation.

In a rare petition against the state, Olmert's lawyers asked the Supreme Court on Monday to block Talansky from giving a deposition prior to any indictment being filed, arguing that the testimony would compromise Olmert's right to a fair hearing.

Prosecutors say Talansky's testimony is crucial for their case against Olmert. The Supreme Court said it found no compelling reason to overrule the decision of a lower court on the matter. That court approved the early testimony.

Talansky is due to give his deposition on Sunday. Prosecutors and police want Talansky to testify before he leaves Israel, fearing he might be reluctant to return. Talansky himself has said he would return to Israel whenever needed.

Olmert's lawyers asked the Supreme Court on Monday to block Talansky's deposition before any indictment is filed. They argued that the testimony would compromise his right to a fair hearing.

Talansky is due to give his deposition on Sunday. Prosecutors and police want Talansky to testify before he leaves Israel, fearing he might be reluctant to return to do so.

State Prosecutor Moshe Lador said Monday that Talansky personally handed money to Prime Minister Ehud Olmert on several occasions.

"While Olmert served as a minister in the Israeli government, he allegedly received funds from Talansky, in Israel and abroad, sometimes through [Shula] Zaken," Lador said.

Speaking at a High Court hearing over a petition submitted by Prime Minister Ehud Olmert and his former office manager, Shula Zaken, against the Jerusalem District Court's decision to hear preliminary testimony from Talansky, Lador also said that Talansky's testimony included details of specific amounts transferred to Olmert, and descriptions of visits to Israel in which he handed Olmert money in envelopes.

Olmert's lawyer, Navot Tel-Tzur, said in response that the prosecution failed to present new facts or evidence in the case that would justify calling an early testimony from Talansky. Speaking on Army Radio, Tel-Tzur asked "how can [the prosecution] solicit early testimony when the suspicion has not been founded?"

Also speaking on Olmert's behalf, attorney Eli Zohar said that the decision to accept early testimony from Talansky is a blatant disruption of the balance between the right to fair trial and public interest.

"The Prime Minister's trial opens on the day that Talansky is scheduled to testify in court. This creates a situation that would almost obligate the prosecution to indict the prime minister," Zohar said.

The High Court held a hearing Monday on a petition submitted by Olmert and his former office manager, Shula Zaken, against the Jerusalem District Court's decision to hear preliminary testimony from American millionaire Morris Talansky.

Police suspect that Olmert received illicit funds from Talansky, making him a key witness in the latest investigations surrounding the prime minister. Zaken is also a suspect in the case.

The prosecution is demanding that Talansky testify now, before an indictment is filed on grounds that Talansky, a close friend of Olmert, may refuse to return to Israel. Talansky announced earlier this week that he refuses to stay in Israel after May 26.

In an interview with Army Radio, Zaken's attorney said that if the court allows Talanksy's early testimony, they will ask for a delay in the proceedings so that they can read the prosecution's case.

While the prosecution said Sunday that the suspicions against the American businessman are not serious enough to justify keeping him in the country against his will any longer, the fact that he remains a suspect arouses concern that he would not return to Israel to testify against Olmert if the premier is indicted, for fear that he might face charges himself.