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Former Bank Hapoalim chairman Dan Dankner and the former director of the Israel Lands Administration, Ya'akov Efrati, were arrested on Wednesday in a case of suspected graft uncovered during investigation of the Holyland corruption affair.

Dankner is suspected of paying, through Israel Salt Industries, at least NIS 1.5 million in bribes to advance a land deal between Israel Salt Industries and the state.

Efrati, the first arrest of an ILA official in the Holyland affair, is suspected of accepting bribes.

The court extended both of their remands by five days.

The police base their suspicion among other things on Israel Salt Industries invoices written out to Meir Rabin, a relative of David Efrati whom the police suspect was a conduit for bribe money, and to Shmuel Dachner, who was employed by the developers to advance the project. The invoices showing that about NIS 1.5 million were paid defined as "mediation fees." As far as is known, the money was paid between 2003 and 2004 and the phrase on the receipt was meant to disguise the real purpose of the payment.

Police suspect that the money was intended for the head of the Israel Lands Administration at the time, David Efrati, as well as to other officials in the ILA and outside it.

At that time, prime minister Ehud Olmert was the minister responsible for the ILA.

In the court hearing on Wednesday, police Superintendent Tzachi Havkin said that from evidence and documents in the possession of the suspects, witnesses and banks, Dankner is suspected of conspiracy to commit a crime, giving a bribe, fraud and breach of trust, falsification of corporate documents, tax evasion and money-laundering.

Efrati is suspected of accepting a bribe from other developers when he was ILA chief, while the suspicions against Dankner have to do with alleged bribes he gave to advance projects on lands belonging to Israel Salt Industries.

When Dankner entered the courtroom yesterday, he told journalists he "felt bad, but I am confident my hands are clean and my conscience is clean."

Rishon Letzion Magistrate's Court Judge Abraham Heiman said after studying a confidential police report that there was a reasonable basis for the suspicions against Dankner, mainly the bribe, and that it was in the public interest to allow the investigation to proceed without concern that it would be impeded.

A senior law enforcement official said Dankner was questioned several weeks ago and police decided not to arrest him, despite the seriousness of the affair. The arrest now shows the strong basis for the suspicions and the concern that Dankner would impede the investigation if her were not under arrest.

Efrati, who served as ILA chief from 2001 to 2008 is suspected of accepting bribes, fraud and breach of trust, in the matter of a number of real estate projects, among which are significant benefits given involving a real estate deal between the Israel Salt Industries and the state, the Ayalon Park apartment project, the Hazera company's land near the former Hirya dump and the Tzuk Manara real estate project

Efrati was questioned on Wednesday only about his involvement in the Israel Salt Industries and Ayalon Park projects; however, he is expected to be questioned in the coming days on other affairs, including the Holyland project.

Police suspect that Efrati, in exchange for hundreds of thousands of shekels, made moves at the ILA that benefited businessmen and real estate developers, among them Dankner, Hillel Charney and Avigdor Kelner.

According to Efrati's attorney, Yaron Kosteliz, Efrati has agreed to a police-arranged confrontation with any official trying implicate him and to undergo a polygraph test.

Kosteliz said the purpose of interrogating his client while under arrest was to "break his spirit."

Efrati reportedly told police on Wednesday that he was not involved in some of the projects they alleged that he was. He said decisions on projects were made by his predecessors or a lower official at the ILA.

Police suspect that Rabin transfered hundreds of thousands of shekels to Efrati to advance the projects in the ILA. Efrati allegedly considered the transfer of money relatively safe, since a relative was involved.

Police on Wednesday said they had uncovered a well-oiled machine of bribery at senior and junior levels to move ahead real estate interests.

Meanwhile, the state prosecution and the police view Shula Zaken, Olmert's former bureau chief and confidant as constantly trying to avoid questioning. "Zaken has changed her return date to Israel three times. This in itself raises questions," a law enforcement official said Wednesday. Zaken is suspected in the Holyland affair of receiving bribes, among others from Shmuel Dachner, and giving them to Olmert.

Zaken's lawyer, Micha Pettman, called a press conference on Wednesday to reject a claim that negotiations were underway for his client to turn state's witness. Police and the prosecution also denied the claims.