Israel's Olmert stays on after report, aides say

By Rebecca Harrison and Ori Lewis

JERUSALEM (Reuters) - Ehud Olmert has told allies he will stay on as Israeli prime minister after an inquiry into the 2006 Lebanon war granted him a reprieve and removed an obstacle to U.S.-backed peace talks with the Palestinians.

An official in Olmert's office said on Thursday the prime minister would "continue to work" and would implement recommendations laid out by the government-appointed Winograd Commission on Israel's 2006 war against Hezbollah guerrillas.

Political allies said Olmert would not quit, and would soon try to build a broader coalition better placed to pursue talks aimed at sealing a deal on Palestinian statehood before U.S. President George W. Bush leaves office in a year.

"I was at his place last night. He said that even had the Winograd Commission been firmer in its criticism, he would not have stepped down," Yosef Lapid, former justice minister and Olmert confidant, told Reuters.

"But given the way it turned out -- certainly not."

Foreign Minister Tzipi Livni, who had called for him to quit over a scathing interim report in April on the war, said the government should "stay and fix" the faults, according to a political source.

The Winograd Commission's final findings issued on Wednesday described "serious failings" by political and army leaders during the war, but did not blame Olmert personally. It endorsed key and controversial decisions he made.

Olmert's political rivals had been positioning themselves for a resignation that could have triggered an early election. But the report was widely regarded by commentators as a reprieve for the man who once described himself as "indestructible".