Jerusalem - Israeli jets flying in acrobatic formation soared over Jerusalem's ancient city walls Tuesday as the nation geared up to celebrate its 60th anniversary later this week.

But the country's attention has been diverted unexpectedly by an unfolding political scandal that threatens to bring down Israeli Prime Minister Ehud Olmert and undermine his fragile peace talks with the Palestinians.

Israeli prosecutors are aggressively pursuing new allegations involving an American businessman's financial ties to Olmert while he was the mayor of Jerusalem in the late 1990s and the early part of this decade, according to Israeli government officials.

The details remain unclear because Israel's courts have imposed a gag order on the case. That hasn't prevented some facts from seeping out. Last Wednesday, a judge allowed journalists in Israel to report that the courts have been asked to approve a special, urgent deposition of a "foreign national."

The New York Post reported that the man at the center of the case is Moshe "Morris" Talansky, a 75-year-old New York investor who was dubbed "The Laundry Man" in financial logs kept by one of Olmert's most loyal aides.

Talansky, The Post reported, is suspected of passing cash to Olmert in the late 1990s.

The prime minister's office said Friday that police investigators had questioned Olmert for an hour about his ties to an American citizen who offered financial support.