In his lifetime, Octav Botnar was one of Britain's richest men, a billionaire car importer and, according to British authorities, a tax cheat on a grand scale. He was also a philanthropist who showered tens of millions of dollars on his favorite causes, which included hospitals, children's funds and the Royal Ballet School.

After his death in 1998, the money continued to flow from Botnar's estate and charitable foundations. Among the beneficiaries were a collection of nonprofit organizations in Israel said to represent taxi drivers, students and doctors--and, ultimately, Ehud Barak's campaign for prime minister.

The movement of several million dollars in cash contributions from Botnar and a variety of other foreign and local donors to Barak's campaign is now the focus of a major criminal investigation. The investigation follows a withering report released Thursday by the Israeli state comptroller, who concluded that the Barak campaign last spring systematically violated the law restricting private contributions to Israeli political parties.

Having parlayed his reputation for integrity and straight dealing into one of his major selling points in his campaign, Barak has suffered a staggering blow from the burgeoning scandal. It has left his seven-month-old administration reeling, braced for a police investigation and under attack from political opponents.

The affair also could set back Barak's plans for Middle East peace. Politically weakened and on the defensive, the Israeli leader may face ever steeper odds of persuading his countrymen to embrace the idea of swapping territory, especially the Golan Heights, for peace with Israel's Arab neighbors.

Barak's problems are compounded by a separate criminal investigation into President Ezer Weizman's acceptance of hundreds of thousands of dollars in gifts from a French businessman. Like Barak, Weizman is a war-hero-turned-dove and one of Israel's most forthright public advocates of peace.

"Barak may survive [in power] but his credibility won't survive," said Yossi Klein Halevi, an Israeli journalist and author. "He was hoping he and Weizman together were going to sell the peace agreement--what more do you need than Israel's No. 1 soldier, Barak, and the man who won the Six-Day War, Weizman? Who's going to believe Barak and Weizman now?"

Although State Comptroller Eliezer Goldberg found no evidence that Barak was involved in his party's scheme to circumvent campaign finance laws, he concluded that the scale of the fund-raising was so massive that the prime minister should have known. The report by Goldberg, a respected former Supreme Court justice, seems likely to reinforce a growing impression among Israelis that their political elites are broadly corrupt and tainted by the influence of hidden money.

Scandals seem to tarnish a different public figure here practically every week. Former prime minister Binyamin Netanyahu is under investigation on suspicion of bribery. Aryeh Deri, the former head of Israel's third-largest party, Shas, is appealing his conviction last year on bribery charges. Former justice minister Tzahi Hanegbi faces indictment on corruption charges. An investigation of the police has uncovered staggering amounts of graft at the highest levels. And one of Israel's foremost businessmen, publishing magnate Ofer Nimrodi, has been charged with a variety of criminal offenses.

Not since a Labor Party government was toppled nearly 25 years ago has Israel been so consumed by scandal, analysts say.

"Since the wave of corruption in the 1970s, Israel has never experienced such a deterioration of the standards of behavior in the corridors of power," Yoel Marcus, a political commentator, wrote in the Haaretz newspaper. "Just opening a newspaper nowadays is enough to turn your stomach."

The central figures in the comptroller's report on Barak's campaign are lawyer Yitzhak Herzog, the prime minister's cabinet secretary and confidant, and campaign manager Tal Zilberstein. Herzog, the well-connected son of late Israeli president Chaim Herzog, transferred money from major donors such as Botnar to an odd array of nonprofit organizations.

Zilberstein, who runs the Tel Aviv office of American Democratic campaign consultants Stanley Greenberg, James Carville and Bob Shrum, worked with the nonprofit groups once the money reached Israel. The three American consultants, who advised Barak's campaign on advertising and strategy, were not mentioned in the comptroller's report. Zilberstein and Greenberg did not return calls seeking their comments.

Most of the nonprofit organizations had high-minded, or at least nonpolitical, names: Hope for Israel; Generation of Peace; Citizens From the Right and Left; Doctors for Immigration; the Association for the Advancement of Taxi Drivers in Israel. In fact, said the comptroller's report, they were front groups whose mission was to pay for polls, advertising, campaign materials and rallies.

Botnar's Camelia Fund, named for his daughter who died in a 1972 auto accident, was not the only source of funds. The state comptroller said American, Canadian and other donors were also major contributors--although they were not singled out for blame.

But Botnar's Camelia Fund seems to have been the largest donor. Nearly $1 million from the British tycoon and the fund were transferred to the nonprofit organizations, the comptroller's report said. And Yitzhak Herzog, an attorney for Botnar when he was alive, had his hands on the purse strings; he is a trustee of the Camelia Fund in Israel, according to the comptroller.

The effect of the scheme was to circumvent Israel's campaign finance law, which limits private donations to political parties in election years to less than $400. The law, written in 1973, makes no mention of contributions to candidates for prime minister, who have run on a separate ballot from their parties since 1996.

Taking advantage of the resulting ambiguity, an Australian businessman spent heavily on an advertising campaign for Netanyahu, the right-wing Likud party candidate for prime minister in 1996.

Barak's Labor Party complained bitterly that the Netanyahu advertising campaign had broken the law that year. But Herzog and others in Barak's campaign concluded that they could defend themselves even if they did the same thing by channeling funds on behalf of Barak's campaign.

"The boundaries of the law were never defined," Herzog said in an interview published today in the Yedioth Aharonoth newspaper. "Legislators did not deal with the system, and none of the institutions of state involved with [campaign finance] determined things clearly."

In his report, the state comptroller rejected that view, contending that the law's intent was clear. Independent experts have agreed, and cast doubt on Barak's insistence that he was ignorant of what was going on.

Nahum Barnea, a political commentator for Yedioth Aharonoth, said Barak's campaign knew it would face the consequences for testing the law's limits but went ahead anyway. The irony, he wrote, is that the extra money, which amounted to barely 10 percent of Barak's campaign outlays, was hardly needed for his landslide victory.

"Even if the contributions are embarrassing, they didn't determine the outcome of the election," he said. "Looking back, this wasn't what in sport they call a smart penalty. This was an unnecessary penalty."