Ehud Olmert (left) says Mr Talansky (right) helped with election funds
Israeli Prime Minister Ehud Olmert has denied taking bribes from a wealthy Jewish-American businessman, resisting calls for his resignation.
Mr Olmert admitted Moshe Talansky gave donations for past election campaigns, but insisted at a news conference "I never took a penny for myself".
He said he would only resign if prosecutors filed criminal charges.
The Israeli justice ministry lifted a week-old gagging order on media reporting the case on Thursday night.
The latest difficulties for Mr Olmert - who is already being investigated in a number of corruption scandals - became public as Israel celebrated the 60th anniversary of its establishment as a state.
Some opposition MPs said the investigation would prevent him from devoting sufficient attention to running the country.
The BBC's Paul Wood, in Jerusalem, says the disclosures are a severe embarrassment just days before a visit by US President George W Bush.
Doubts over Mr Olmert's future are also likely to upset further the faltering US-sponsored peace talks with the Palestinians.
'Not a penny'
New York-based financial Morris "Moshe" Talansky is said to have given hundreds of thousands of dollars in cash to Mr Olmert at a series of meetings in the 1990s.
According to Channel 2 TV, police said they did not know how the money was used.
Mr Olmert said Mr Talansky had helped him raise election funds but he insisted everything had been legal.
The Talansky contributions were towards two mayoral campaigns for Jerusalem, one campaign for chairman of the Likud Party and another to cover campaign debt retroactively, according to the prime minister.
"I never took bribes, I never took a penny for myself," he said in a televised statement to the press on Thursday night.
Mr Talansky, in Israel to celebrate the Passover holiday, told Channel Two he had been "baffled" when police called him in for questioning.
"They [the police] knocked on my door at six in the morning and it was the national police and they asked me to come with them and I obliged," he said.
"It was very surprising. When they asked me details, I said whatever I know."
He and Mr Olmert, he added, were "very, very friendly" and had often had dinner together in New York.
Mr Olmert became prime minister after the incumbent Ariel Sharon suffered a massive stroke in January 2006. He led the Kadima party founded by Mr Sharon to victory in general election two months later.
"A state like Israel, with an existential threat, needs a full-time prime minister," said Arieh Eldad of the hardline National Union party.
"We need a much better leader at this time, and Israel should go to general elections in order to replace him with a better government,» Mr Eldad said.
"I was elected by you, citizens of Israel, to be the prime minister and I don't intend to shirk this responsibility," Mr Olmert said on Thursday.
In November 2007, Israeli police dropped an investigation into Mr Olmert in connection with a bank privatisation.
At the time, they were still investigating two other cases in which Mr Olmert is alleged to have behaved improperly.
The prime minister has never been charged or convicted in any of the cases.
Regarding the latest allegation, he said he hoped the "storm" would "pass with the same speed by which it was ignited".
In their statement on Thursday, Israeli police said they had made clear to Mr Olmert that the investigation would continue "on another date".