Lawyers representing Israeli Prime Minister Ehud Olmert cross-examined an American businessman Thursday, hoping to undermine his allegations that Olmert illicitly accepted cash-stuffed envelopes from him to help fund a luxurious lifestyle.

The businessman, 75-year-old Morris Talansky, appeared nervous in the Israeli court room, drumming his fingers on the table, fidgeting with a plastic cup and at one point asking for a break. He insisted he told the truth in previous testimony.

Lawyers spent hours grilling him about previous testimony and attempted to undercut his credibility by pointing out what they said were Talansky's frequent, unfounded lawsuits and an untoward attempt to secure a fat severance package from a Jerusalem hospital.

The questioning of Talansky, a key witness, is seen as perhaps Olmert's last chance of political survival. Talansky's testimony in May seriously damaged the prime minister's credibility among Israelis. The resulting outrage prompted Olmert's Kadima Party to set new leadership elections, to be held by Sept. 25.

Olmert's premature departure from office could seriously hamper or delay his government's efforts to conclude a peace deal with the Palestinians and resume full negotiations with the Syrians.

Olmert, who has consistently denied any wrongdoing, has said he will resign if he is indicted.

But Olmert's political fortunes were sagging even before the so-called Talansky affair emerged. He has been the subject of four other corruption probes. His approval ratings plummeted after he was widely perceived as mishandling a monthlong 2006 war against Lebanon's Hezbollah guerrillas _ a war Olmert launched after two Israeli soldiers were captured in a cross-border raid two years ago.

The bodies of the two soldiers were returned to Israel on Wednesday in a prisoner swap with Hezbollah. Funerals for the two men were held on Thursday, at the same Talansky was being cross-examined.

Israel freed five Lebanese prisoners and handed over the bodies of 199 Arab fighters in exchange for the bodies of the two servicemen. The exchange was not expected to bolster Olmert's political standing, critics charging that it would only encourage more kidnappings.

Olmert is reportedly still considering running in the Kadima primaries, hoping that his lawyers will be able to discredit Talansky, an Orthodox Jew who lives on New York's Long Island, but frequently visits family in Israel.

Talansky said Olmert accepted hundreds of thousands of dollars in cash during his tenure as Jerusalem mayor and as a Cabinet minister before he was elected prime minister in 2006. The money went to feed a penchant for expensive cigars, first-class travel and luxury hotels, Talansky charged. His cross-examination is expected to take five days.

Police suspect the money was meant as bribes _ although Talansky insisted he never got anything in return _ or illegal campaign financing.

In Thursday's cross-examination, Olmert lawyer Eli Zohar accused Talansky of forgetting details or giving inaccuracies in his earlier testimony.

Talansky responded by saying he might have gotten a few minor things wrong, like the time events occurred, but that in general he was telling the truth.

Later lawyers questioned Talansky about several legal disputes. In one, the lawyers said Talansky demanded severance pay of $3 million from a Jerusalem hospital for which he raised funds over two decades. The lawyers noted that Talansky was accused of falsifying a document stating the hospital would pay him the amount, but Talansky insisted the document was authentic.

It may be months before police decide whether to indict Olmert.

In the latest revelation in the case, police last week accused Olmert of pocketing thousands of dollars by deceiving multiple sources _ including organizations for Holocaust survivors _ into paying for the same trips abroad.

Olmert has called the accusations "distorted," charging the police and state prosecutors with trying to bring him down.

Olmert said he felt insulted because he said he had worked hard for the organizations named in the allegations, which included the Yad Vashem Holocaust memorial and the Nazi watchdog Simon Wiesenthal Center.