Mr Netanyahu will learn on Sunday if he and three associates will be put on trial for "fraud and breach of trust."
Mr Netanyahu insisted yesterday that he would not resign, despite the police recommendations revealed on Wednesday evening.
"We are not going anywhere," he told a crowd of supporters. "We are staying in place where the people and country put us, and we will continue to lead the people."
At the Likud party headquarters in Tel Aviv, he declared: "Don't let your spirits sink. Stand strong. The truth will be victorious."
Even if he is not indicted, Mr Netanyahu may find it difficult to remain prime minister for much longer. A government minister was quoted yesterday as saying: "The status of the government and the status of the prime minister have been very seriously damaged." Another said: "This could be the end of Bibi's [Mr Netanyahu's] career."
Even if the Attorney-General and the state attorney decide against indicting Mr Netanyahu, the case is likely to go to appeal, for the Supreme Court to reverse the decision.
Shimon Peres, the previous prime minister and the leader of the Labour party, described the move as "an earthquake in Israeli politics".
The scandal, known in Israel as the Bar-On affair, revolves around the appointment of an obscure Jerusalem lawyer called Roni Bar-On as Attorney- General in January.
Police say Mr Netanyahu, together with the head of his office and the Justice Minister, corruptly gave the job to Mr Bar-On so he would offer a plea bargain to Aryeh Deri, the leader of one party in the governing coalition, who is on trial for fraud and taking bribes.
The indictment of Mr Deri, Tzahi Hanegbi, the Justice Minister, and Avigdor Lieberman, head of the prime minister's office, came as no surprise.
But the government was taken by surprise by the revelation that the police want to put on trial the prime minister himself.
Mr Netanyahu was publicly resolute. He met Dennis Ross, the US peace envoy, yesterday.
But nobody expects any progress in the already troubled peace process while Israeli politics are dominated by Mr Netanyahu's fight to survive.
Few would disagree with Hanan Ashrawi, a Palestinian minister, who said: "Until the situation is resolved, the peace process is certainly not going anywhere."
Mr Arafat said the political crisis is a domestic Israeli affair. But he is reportedly being briefed every hour on developments.
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