It could be as damaging as any US presidential scandal. Israelis are already making comparisons to Watergate. But Prime Minister Benjamin Netanyahu says that accusations that he was involved in criminal wrongdoing to secure his power are nothing more than slander by a liberal media out to get him.
The crux of the allegations is this: To secure Cabinet backing from a major political leader for a key deal with the Palestinians, Mr. Netanyahu may have appointed an under-qualified attorney general, who in turn planned to arrange a plea bargain for the political leader in a court trial.
At the center of the allegations is Aryeh Deri, the leader of the powerful orthodox Jewish party Shas. Mr. Deri isn't in Netanyahu's Cabinet, but wields strong influence over several members of the Cabinet. He has also been on trial for fraud for three years.
According to TV reports, Deri told Netanyahu that the Shas ministers in the Cabinet wouldn't vote for the deal to pull Israeli troops out of Hebron unless Netanyahu appointed a political ally, Jerusalem lawyer Roni Bar-On, as attorney general. In return for the favor, Mr. Bar-On allegedly promised a plea bargain for Deri that would end his prosecution.
The scandal has ratcheted up amid reports that when Netanyahu was questioned by investigators last week, his testimony contradicted that of another senior official. Because of the discrepancies, Netanyahu's questioners warned him that anything he said might be used against him in court. Netanyahu has since hired a personal lawyer and denies wrongdoing.
And in a sign of growing discontent even among Netanyahu's political allies, Avigdor Kahalani, the police minister, told Israel Radio, "The moment there is an indictment, or it becomes clear that the affair involves people from within the government, meaning the prime minister or justice minister ... this government will have to go home, and we will have to hold elections."
Netanyahu's backing of the ill-qualified Bar-On for attorney general created a row in his government from Day One. Six of 18 ministers voted against the appointment or abstained, claiming they new little about Bar-On other than his reputation as an activist in Netanyahu's Likud party.
When Israel's Supreme Court decided to hear a petition against the appointment, Bar-On stepped down - a day after he had been appointed.
The issues are different, though the players are similar to those in President Richard Nixon's debacle in the 1970s. Instead of Washington Post reporters Bob Woodward and Carl Bernstein, Israelis have reporter Ayala Hasson, who broke the story and has refused to divulge her sources.
And somewhere there is an inside source who had intimate knowledge of the affair and leaked it to Ms. Hasson. One suspect is Deri's own lawyer, Dan Avi-Yitzhak. Mr. Avi-Yitzhak quit as Deri's lawyer last week. He bashed his former client, saying Deri orchestrated and pressed for Bar-On's appointment.
Does all of this mean that Netanyahu is in danger of losing his grip on power so soon after last May's election? If Netanyahu is found guilty of criminal wrongdoing in the case, he could be brought down by a vote of 61 of the Knesset's 120 members - the closest thing Israel has to impeachment.
But many legal experts say that the affair isn't yet at that point. From Watergate to Whitewater, the crucial question in most scandals is relevant here: How much did Netanyahu know?
Most important is whether Netanyahu knew of Bar-On's alleged deal with Deri for a plea bargain. Only that would be considered criminal.
Anything short of that knowledge could be little more than a mark on Netanyahu's ethics report card, and he might be forgiven by the public for giving into pressure or blackmail to install Bar-On if it seemed the only ticket to salvaging the tottering peace process.
Reuven Hazan, an expert on law and politics at Jerusalem's Hebrew University, puts the chances of Netanyahu being found guilty of criminal wrongdoing in the case at nil. "Proving it is like Ronald Reagan and Irangate. Even if there was criminal wrongdoing, he can say he didn't know, someone will be there to cover for him."