JERUSALEM, April 13 (Dan Williams and Allyn Fisher-Ilan/Reuters) - Israel's attorney-general told Foreign Minister Avigdor Lieberman on Wednesday he could be indicted on graft charges that would likely force his resignation and shake up the rightist coalition government.

Lieberman, who denies wrongdoing, will be allowed personally to plead his case to Attorney-General Yehuda Weinstein before a decision is made whether to file charges including fraud, money laundering and witness tampering, the Justice Ministry said.

Its announcement came as Lieberman, senior coalition partner to Prime Minister Benjamin Netanyahu, presided over a convention of his ultranationalist Yisrael Beiteinu (Israel is Our Home) party in Jerusalem.

After a speech that celebrated party ideals such as refusing to cede occupied West Bank land to the Palestinians, demanding loyalty oaths from Israeli Arabs and promoting the interests of secular immigrants from the former Soviet Union such as himself, Lieberman appeared to shrug off the looming legal reckoning.

I have always acted in accordance with the law and I have no reason to worry, he said. After 15 years, I will finally have the chance to prove that I always conducted myself legally.

Yisrael Beiteinu lawmaker Faina Kirschenbaum said it was too soon to say what steps the party would take over Weinstein's decision but that Lieberman would have to quit if indicted.

Let's exhaust the process and then see where we are, Kirschenbaum told Reuters.

The Justice Ministry said Lieberman was suspected of using shell companies and third-party accounts to receive more than $1,200,000 illicitly while in public office, including from foreign magnates with business interests in Israel.
              

DEFRAUDING THE PUBLIC

Lieberman and confidants were suspected of trying to cover up these dealings through methodical and protracted actions defrauding the public and national institutions, the ministry said in a statement.

It further accused Lieberman of trying to promote Israel's ambassador to Belarus after the envoy leaked him privileged information about police investigation against him dating back to the 1990s.

Though police had recommended Lieberman also be indicted for bribery, this charge did not appear in the ministry statement.

Israel's Channel Two television said a conviction for money laundering could spell a 10-year jail term, similar to bribery.

Israel's Supreme Court ruled in a 1993 case that the prime minister was required to dismiss a government official who was charged with a crime. Israeli legal analysts say this precedent means Lieberman would have to step down if indicted.

Yisrael Beiteinu is Netanyahu's largest coalition partner, and the third largest in Israel's parliament. If Lieberman were to resign and his party also quit the coalition, Israel could face an early election.

But Netanyahu could continue to govern without the need for a ballot by seeking an alternative coalition partner such as the centrist Kadima, a step that could also lead to renewed Middle East diplomacy.

US-sponsored peace negotiations with the Palestinians collapsed last year after Netanyahu refused to renew a freeze on West Bank settlements taking up land they want for a state.

While Netanyahu has pledged to continue trying to secure an accord for Palestinian independence, Lieberman -- himself a West Bank settler -- has publicly written off the talks as pointless.

Netanyahu came out in support of Lieberman on Wednesday, saying in a statement he hoped the foreign minister would prove his innocence and continue to make his public contribution.

(Writing by Dan Williams; Editing by Peter Graff)