Ehud Olmert, the Israeli Prime Minister, announced tearfully last night that he would step down in September, ending months of speculation over whether he could ride out a string of corruption allegations.

“I have decided I won’t run in the Kadima movement primaries, nor do I intend to intervene in the elections,” Mr Olmert said, tears glistening in his eyes as he made an impromptu announcement from his Jerusalem office.

“I have made mistakes and I regret it,” said the 62-year-old, who has prostate cancer.

The disclosure is likely to have a juddering effect on the fraught Middle East peace process, since much of the recent progress in talks with the Palestinians had hinged on the close personal bond Mr Olmert had forged with Mahmoud Abbas, the Palestinian President.

Mr Olmert said that he needed to dedicate himself to clearing his name in the fifth and most damaging case police have opened against him, involving allegations that he received $150,000 (£75,000) in cash from an American Jewish businessman, Morris Talansky, in undisclosed donations before he became Prime Minister.

Mr Talansky has alleged that the Prime Minister used the money not for campaigning but to indulge his taste for the high life.

“I am not bitter and I am not preaching morality,” said Mr Olmert, who took power two and a half years ago when his predecessor Ariel Sharon, the founder of the centre-right Kadima party, suffered a massive stroke.

“When a new [party] chairman is chosen, I will resign as Prime Minister to permit them to put together a new government swiftly and effectively,” Mr Olmert said. The party plans to hold its internal leadership elections on September 17.

Mr Olmert’s leadership has suffered a succession of serious blows, from his handling of the invasion of south Lebanon in the summer of 2006, when Israeli forces failed to smash the militant movement Hezbollah, to a series of corruption investigations that even a renowned political survivor such as himself could not quite shake off.

The day before the announcement Tzipi Livni, the Israeli Foreign Minister and the most likely successor to Mr Olmert, said that the party had lost its way under his leadership.

“The sense of hope that had been a part of the establishment of Kadima has been lost along the way,” she said at a rally.

Mr Olmert, his popularity at rock bottom, last night insisted that he was an innocent man trying to clear his name after being hounded by allegations since he took office. “From my first day in office I was forced to ward off malicious attacks, even while dealing with far-reaching decisions affecting Israel’s defence and existence,” he said.

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