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State Comptroller Micha Lindenstrauss is expected to reverse an earlier decision and recommend to Attorney General Menachem Mazuz that he conduct a criminal investigation into alleged political appointments by Prime Minister Ehud Olmert.

At issue are appointments Olmert made when he was industry, trade and employment minister. Lindenstrauss is also expected to recommend the probe be extended to Raanan Dinur, then ministry director general.

Lindenstrauss submitted his report on the ministry's Small Business Authority to Mazuz last week without recommending a criminal probe. However, his office received additional materials after the report was released, and officials there concluded a criminal investigation was in order, probably over evidence of fraud and breach of trust. This decision was approved by Lindenstrauss, as is required by law.

Once Mazuz receives Lindenstrauss' revamped recommendation, expected within a week, he will consult with State Prosecutor Eran Shendar and other officials. He will then instruct Police Commissioner Moshe Karadi and Police Investigations Department head Major General Yohanan Danino to establish a special investigation team. The team will investigate people mentioned in the report, including Olmert, Dinur, other employees of the ministry and the Small Business Authority, and Likud Central Committee members.

The report alleges that ministry officials created positions without releasing public tenders - and which costed hundreds of thousands of shekels of public money - for members of the Likud Central Committee.

Mazuz can decide not to act on the comptroller's recommendation. In this case, he would be called upon to defend his decision if the High Court of Justice receives a petition against it.

When the police open their investigation, they will speak to all witnesses questioned by the comptroller's office. At that time, suspects many change their testimony to protect more senior officials; however they will then be at risk of charges of falsifying testimony.

Haaretz has learned that following the publication of a number of affairs in which Olmert was allegedly involved, he contacted attorney Eli Zohar. These affairs include the Industry, Trade and Employment Ministry appointments, the purchase of his home on 8 Cremieux Street in Jerusalem and his relations with attorney Uri Messer.

Zohar has represented Olmert in a number of matters in recent years.

Zohar yesterday refused to confirm or deny whether he had advised Olmert on the matters being investigated by the comptroller, but mentioned only his friendship with Olmert and Olmert's family. Zohar's office said that since the attorney had "advised Olmert in the past and advises him at present, is is reasonable to expect he will be advising him in the future."

The comptroller's report states that during Olmert's tenure as deputy prime minister and industry, trade and employment minister, while Dinur was the ministry's director general, the Small Business Authority was used for "appointments made with political considerations through an improper process."

This use was allegedly made by "senior officials in the Industry, Trade and Employment Ministry to benefit individuals close to the party of the minister at that time, Olmert."

The comptroller found that at the beginning of 2004, Olmert and Dinur worked to establish a new deputy director general position, one of whose jobs was "implementing projects." The job was given to attorney Lilach Nehemia, the partner of then-tourism minister Abraham Hirchson, a political associate of Olmert's. Nehemia had been rejected for another position in the Israel Government Tourism Authority due to concerns that it would appear to be a political appointment, since she had no particular skills for the position. Following Nehemia's appointment, at least three other Likud Central Committee members were appointed to "implement projects" - Shimon Moshe, Itzhak Michaeli and Yaakov Fadida.

According to legal experts acquainted with the investigative materials the comptroller's office used, the Industry, Trade and Employment Ministry affair is not essentially different from the political appointments affair in the Environment Ministry, which led to Mazuz's indictment of then-environment minister Tzachi Hanegbi.

The indictment against Hanegbi states that the minister "worked in a planned and methodical manner on his own and with others, mainly [ministry director general Shmuel] Hershkovitz, to bring about the appointment of central committee members and associates to as many positions and functions as possible in the ministry and in bodies associated with it, impairing the chance of the general public to compete for these positions and functions, sometimes without seeing to it that their talents suited the position. This action was taken while taking advantage of public resources to benefit political and personal interests that do not conform to the public weal."

The State Comptroller's Office yesterday refused to comment on the information regarding the opening of the investigation against Olmert.

According to sources familiar with the materials, there is no connection between the new recommendation and the conflict that developed last week between Olmert and Lindenstrauss. The two were at loggerheads over the prime minister's authority to ask the comptroller to scrutinize the homefront's wartime preparedness, and charges that the prime minster was attempting to limit the scope of the investigation to avoid looking at his wartime decisions.