Israel's attorney general dropped a corruption case against Ariel Sharon (search) on Tuesday, ending months of uncertainty over the prime minister's political future and boosting prospects for an Israeli withdrawal from the Gaza Strip (search) in 2005.

Attorney General Meni Mazuz said in a statement that he would not indict Sharon on charges of taking bribes. He said the evidence "does not bring us anywhere close" to being sufficient for a conviction.

The decision clears the way for Sharon to court the opposition Labor Party (search), which has said it would consider joining the government only if the prime minister was cleared of corruption allegations.

Sharon needs Labor to restore the parliamentary majority he lost as a result of the dismissal or defection of Cabinet hard-liners opposed to a Gaza withdrawal. Sharon wants to remove Israeli soldiers and settlers from Gaza by the end of 2005. Labor favors withdrawing from most of the West Bank as well.

Labor Party leader Shimon Peres said he was happy for Sharon, but so far his party had not been asked to begin formal talks about joining the government. Peres gave a clear indication that when the question comes, the answer would be positive: "The Labor Party has only one consideration — what will promote peace, what will hasten the evacuation of the Gaza Strip."

Sharon and Labor teamed up during Sharon's first term as premier from 2001 to 2003, but the government broke apart over the issue of funding settlements. Many Labor stalwarts oppose reconstituting the team, preferring to bring down the Sharon government and force elections.

However, Peres appears intent on guiding his party back into the coalition, where he would expect to receive a top position — possibly foreign minister.

The decision to drop the corruption case reinforces Sharon's shaky hold on power. Had Mazuz decided to indict Sharon, the prime minister would probably have been forced to step down, at least temporarily.

At the center of the corruption case were suspicions that Israeli businessman David Appel paid Sharon's son Gilad hundreds of thousands of dollars to help push through a lucrative real estate deal in Greece, at a time when Sharon was foreign minister in 1999. In the end, the project failed.

Mazuz also closed the case against Gilad Sharon.

Appel has been indicted for allegedly paying bribes, but under Israeli law, prosecutors must prove the recipient of a bribe was aware of the improper payments. Sharon denied wrongdoing.

In his statement, broadcast on Israeli radio and TV, Mazuz said there was no solid evidence against Sharon. "The evidence in this case does not bring us anywhere close to a reasonable chance of conviction," he said. Mazuz refused to answer questions from reporters.

Mazuz informed Sharon of the decision by phone before issuing the statement.

Mazuz insisted that rules for premiers must be the same as rules for other citizens. In his lengthy statement, he did not criticize Sharon's actions in the failed deal.

Critics wondered how a business associate could be indicted for bribing Sharon and the state prosecutor recommended indicting the premier — but the attorney general had not even one unfavorable word to say about Sharon.

Israel Radio's legal commentator, Moshe Negbi, was incredulous. "Someone who is now a Supreme Court justice, " he said, referring to then-state prosecutor Edna Arbel, "decided to indict the prime minister without anything approaching a reasonable chance of conviction?"

Justice Minister Joseph Lapid endorsed the Mazuz findings but sounded a warning about corruption in general. "There are some aspects of capital and government that disturb me and should disturb every law-abiding citizen, but right now this isn't found in this report," he said.

The opposition party Yahad said it would appeal the attorney general's decision.

"A decision by Mazuz not to bring (Sharon) to trial cannot be the end of this," Yahad legislator Ran Cohen told Israel Radio. "Only its (the Supreme Court's) decision will put an end to this affair."

Also Tuesday, the military intelligence head told a parliamentary committee that security forces recently foiled a major Palestinian terror attack. A participant in the closed meeting said six Palestinian bombers planned to blow themselves up simultaneously in Israel to avenge the assassination of Hamas leaders in Gaza.

In another development, officials said Israel is considering building thousands of new housing units in West Bank settlements, while withdrawing from Gaza.

Defense Minister Shaul Mofaz met Monday with settler leaders in Gush Etzion, and security officials said he told them he would consider their request to authorize between 1,000 and 2,000 new homes in the area. Mofaz told settlers he would decide within three months, the officials said on condition of anonymity.