Israel is celebrating its 60th birthday this week with a series of events ranging from barbecues and military fly-pasts to a full-scale anniversary ceremony to be attended by President Bush on Wednesday.

The Times interviewed a number of people who were in Jerusalem in the spring of 1948, when David Ben Gurion declared the foundation of a Jewish state as British forces pulled out of their bases; their mandate over. Now in their seventies and eighties, many have vivid memories of those days of chaos and warfare – their legacy still evident in the violence that enshrouds the region.

Beyond the pomp and circumstance, the celebrations are being overshadowed by the habitual worries of the past six decades.

Ehud Olmert, the Prime Minister, is fighting for his political survival as a new corruption scandal breaks over his head. Palestinians fear it could derail the tentative peace process and lead to renewed fighting.

In the north, Lebanon was once again descending into violence as Hezbollah, one of the Jewish state’s most implacable foes, seized control yesterday of large parts of Beirut from government forces.

In the south, Hamas, linked to Hezbollah through its virulent antiIsrael policy and support from Iran, is building up its forces in the Gaza Strip.

Opponents of Mr Olmert are calling for his resignation, despite his hastily convened press conference on the night of Independence Day to deny wrongdoing.

“I am looking all of you in the eye, and I say I never took bribes, I never took a penny for myself,” he told the nation, as a gagging order was partially lifted on an investigation into allegations that he received hundreds of thousands of dollars in illegal campaign donations from an American Jewish businessman.

Mr Olmert, staving off a fourth corruption inquiry, said he would step down if the country’s Attorney-General charged him.

That could lead to snap elections in which the right-wing Likud party would probably emerge victorious, propounding a far harder line on peace talks with the Palestinian leadership.

The fresh allegations came less than a year after Moshe Katsav, the former President, was forced to step down amid accusations that he had raped members of his own staff; charges that he denied.

The series of high-level sleaze allegations – which have also led to the jailing of a son of Ariel Sharon, the former Prime Minister – have eroded Israelis’ trust in their political elite.

With a renewed peace process already showing signs of collapsing over Israel’s continued policy of settlement expansion in the West Bank and the Palestinian Authority’s inability to contain violence, the collapse of the Olmert Government was causing concern.

Israeli officials fear that if they fail to secure a lasting peace deal with Mahmoud Abbas, the Palestinian President, they may miss the chance of reaching an accord for many years and instead see a rise in extremism as Iran tries to extend its influence beyond Syria, Iraq, Lebanon and Gaza.

Yesterday, Islamist militants wounded two Israelis, one of them critically, in a cross-border mortar attack. A retaliatory Israeli airstrike killed two Hamas security men later in the day.

It was just the latest clash in a war of attrition that has seen Palestinian factions fire thousands of missiles into Israel. Israel’s own cross-border raids have killed hundreds of people.

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