Israel marks 60 years as police probe Olmert

By Rebecca Harrison

JERUSALEM (Reuters) - Israel celebrated its 60th birthday with barbecues and military display on Thursday but the party was marred when police announced they were investigating whether the prime minister had taken massive bribes.

Ehud Olmert said in a late-night televised statement that he had taken cash for a decade from an American businessman but insisted they were legitimate campaign donations and refused to resign unless the attorney general indicted him.

Doubts over his future could derail U.S.-backed efforts for a peace deal with the Palestinians already beset by squabbles over Jewish settlements and violence in the Gaza Strip.

"I never took bribes. I never took a penny for myself," said Olmert, who is due to welcome U.S. President George W. Bush to anniversary celebrations next week.

Details of the probe, hushed up for a week by a media gag order, emerged after a day of rejoicing.

Fighter planes had traced "60" in smoke trails across the sky, paratroopers dropped into the sea and a youth Bible quiz highlighted the place Jewish faith holds in a state mainly founded by secular Zionists.

War or the threat of it has clouded every day for Israelis since 1948 when David Ben-Gurion declared the state that was destined to be a haven for survivors of the Nazi Holocaust.

On Thursday, blue-on-white Star of David flags fluttered from cars and rooftops, and families gathered to focus on the positive. "It's an emotional day," said Tzviya Gilboa, 57, among vast crowds packing sunny beaches at Tel Aviv. "Anything that is connected to Israel is exciting to me."