Last night, after the New York Post‘s investigative journalism had rendered a stringent gag order on the media ineffective, Prime Minister Ehud Olmert finally spoke out regarding the scandal that has shrouded his office for the past week. In a gloomy tone, Olmert denied taking bribes from an American businessman, and vowed that he would resign from office if indicted. At the moment, it remains unclear what the fallout will be, and two options remain if Olmert is forced from office: either a new government will form under Foreign Minister Tzipi Livni, or new elections will be held.

In the event that new elections are held, this would mark the first time in two decades that the U.S. presidential and Israeli Knesset campaigns coincided. But unlike in 1988, when the pro-Israel positions of both major U.S. candidates satisfied the Israeli public, the 2008 presidential elections will most likely feature a Democratic nominee that many American Jews–and, in turn, many Israelis–don’t sufficiently trust on Israel.

Here’s my prediction: Israeli front-runner Benjamin Netanyahu will use this mistrust of Obama to decry negotiations with the Palestinians as forcefully as ever on the campaign trail, thus validating his staunch rejectionism if elected. Expect the argument to sound something like this: Israel not only lacks a negotiating partner in the Palestinians, but will lack a credible mediator in Obama if he’s elected, which appears likely. Indeed, this process is already starting, with Netanyahu’s aides leaking that American Jewish community leaders recently approached the Likud opposition leader to share their concerns regarding Obama–a stunning break from the taboo against Israeli politicos weighing in on American presidential candidates.

Insofar as Israeli-Palestinian peace remains a key U.S. strategic interest in the Middle East, Netanyahu’s election under these terms would be a disaster for U.S.-Israel relations. Granted, Netanyahu was hardly an eager participant in the U.S.-sponsored Oslo process during his first term as prime minister; however, at the time, he was still diplomatically bound to an agreement that his predecessors had signed, and therefore compelled to go through the motions. But with Oslo long dead and Obama the general election front-runner, Netanyahu is no longer constrained, and his very rationale for opposing the Annapolis meeting–“They are giving away everything and getting nothing”–indicates that outright rejection of the land-for-peace principle might soon make its return to Prime Minister’s office.