JERUSALEM

Israeli Prime Minister Ehud Olmert warned in a published interview yesterday that "the state of Israel is finished" if a Palestinian state is not created, saying the alternative is a South African-style apartheid struggle.

The explosive reference to apartheid came as Olmert returned from a high-profile peace conference in the US, hoping to prepare a sceptical nation for difficult negotiations with the Palestinians.

Just hours after his return, the Israeli leader received an important boost when police recommended that prosecutors drop an investigation into whether Olmert illegally intervened in the government's sale of a bank two years ago.

While Olmert has long said the region's demography is working against Israel, the comments published in the yesterday were among his strongest. Israeli officials have long rejected any comparison to the racist system once in place in South Africa.

Olmert and Palestinian President Mahmoud Abbas agreed this week at a summit in Annapolis, Maryland, to resume peace talks with the Palestinians after a seven-year freeze. The two leaders pledged efforts to reach an agreement on the creation of a Palestinian state by the end of next year.

In the interview, Olmert said it is a vital Israeli interest to create a Palestinian state.

"The day will come when the two-state solution collapses, and we face a South African-style struggle for equal voting rights," Olmert told Haaretz. "As soon as that happens, the state of Israel is finished."-AP