Ehud Olmert's immediate test as Israel's acting prime minister — and a harbinger of his stand on Mideast peacemaking — will be whether he will allow Palestinians to vote in Jerusalem in their upcoming parliamentary elections.

A "no" could derail balloting scheduled for Jan. 25 and upset the Bush administration, which is pushing for greater democracy in the Arab world. A "yes" might harm Olmert's chances of winning Israeli elections in March if he appears to be caving to outside pressure.

Olmert-watchers say he is expected to try to work out a compromise to avoid starting off on the wrong foot with Washington.

If Olmert were elected Israel's next leader, they say, he could be more amenable to negotiating a peace deal with the Palestinians than his ailing mentor Ariel Sharon, who did not consider the Palestinians trustworthy partners.

"He is a shrewd lawyer, a very practical man," said Olmert's longtime friend, Moshe Amirav. "If they (the Palestinians) can deliver stability, he will be ready to give up land, and surprise the world with his moderation."

Olmert was thrust into the No. 1 job after the 77-year-old Sharon suffered a debilitating stroke on Wednesday. If Sharon does not recover, Olmert is the most likely candidate to lead the prime minister's newly formed centrist Kadima Party into the March 28 election, and is seen as a strong contender for the premiership.

In the past four years, Olmert has been Sharon's trusted point man, often floating proposals in public that later became policy. Some say Olmert embraced the idea of a unilateral withdrawal from some Palestinian-claimed lands well before Sharon did in 2003, and that he had a role in Sharon's startling transformation into a moderate.

For much of his political life, Olmert was a right-wing ideologue who espoused the idea of a Greater Israel that encompasses the West Bank and Gaza.

Born into nationalist "aristocracy," the suave political operator rose through the ranks of the right-wing Likud Party, starting as a parliament member in 1973 and winning his first of several Cabinet posts in 1988. In 1993, he was elected mayor of Jerusalem, the city both Israel and the Palestinians want as a capital.

Olmert's metamorphosis began during his 10 years as Jerusalem mayor, when he was confronted with a complex reality, said Uri Dromi, a government spokesman in the 1990s for prime ministers Yitzhak Rabin and Ehud Barak.

"What happened to Sharon on the big scale, when he finally sat down at the prime minister's desk and saw things differently, happened to Olmert on the city scale, dealing with Arabs and Jews, holy sites, terror," Dromi said.

Olmert gradually abandoned the belief that Israel can hold on to all Arab neighborhoods in east Jerusalem, the sector Israel captured in the 1967 Mideast War and annexed into its capital.

However, he still opposes giving up all of the eastern sector, particularly the walled Old City with key holy sites of Judaism, Islam and Christianity, said Amirav. In 2000, he dismissed another proposal, a joint Israeli-Palestinian administration of the city, as "Italian pasta. Everything would be mixed up with everything," Dromi said.

Perhaps the best clue to Olmert's view on Jerusalem is the path of the barrier separating Israel from the Palestinians.

As vice premier, Olmert helped chart the barrier segment that cuts off most of east Jerusalem, claimed by the Palestinians as a future capital, from its West Bank hinterland. The barrier also slices through Arab neighborhoods of the city and leaves some 55,000 of 230,000 Palestinian residents of Jerusalem on the West Bank side.

Now, the fate of Jerusalem is the first major issue he will have to deal with while standing in for Sharon.

Several weeks ago, Israel threatened to ban voting for the Palestinian parliament election in Jerusalem, even by absentee ballots cast at post offices in the city. Such a model had been used during the previous parliament election in 1996.

However, Israeli officials said they would not allow any election activity, including campaigning, in Jerusalem this time because of participation by the Islamic militant Hamas, which calls for Israel's destruction.

Israeli security forces have clamped down on campaigning in Jerusalem, detaining Palestinian candidates for questioning and confiscating campaign material.

Palestinian leader Mahmoud Abbas, under pressure from his Fatah movement to cancel the vote for fear of defeat by Hamas, has suggested the election would not be held without Jerusalem participation. With conflicting claims to the city, voting procedures take on great symbolic importance.

The Palestinians want the U.S. to pressure Israel, encouraged by Washington's pro-democracy campaign.

Lately, Israel has indicated a willingness to be flexible on the issue.

"There is a certain amount of ambiguity in our position, and that's deliberate, because it's a complex issue," Israeli Foreign Ministry spokesman Mark Regev said Saturday.

With just over two weeks until the election, Olmert must decide soon.

Menachem Klein, an expert on Jerusalem, said he expected Olmert to compromise. "I don't assume he will be happy to contest the Americans in his first decision," Klein said.

In recent years, Olmert has been a leading proponent of the idea that Israel need not wait for a formal peace treaty with the Palestinians to draw its own borders.

However, as prime minister Olmert might be more open to the idea of negotiations, analysts said.

"He'll follow Sharon's path of unilateralism, but he'll leave some opening for opportunity," said Dromi.