(Adds Labour party challenge, quotes)

By Jeffrey Heller

JERUSALEM, May 10 (Reuters) - Israeli leader Ehud Olmert cast blame on the military for failings in the Lebanon war in testimony released on Thursday to an inquiry whose criticism of his own conduct has him battling for political survival.

"I think the army disappointed itself to a large degree," the prime minister told the Winograd Commission investigating last year's costly war against Lebanon's Hezbollah guerrillas.

"Something in the command and control concept did not meet expectations and undoubtedly led to a disparity between what we were capable of achieving and what we actually achieved," Olmert said.

In an interim report last week, the government-appointed panel said Olmert was guilty of "a serious failure in exercising judgment, responsibility and prudence" in deciding to go to war after Hezbollah seized two Israeli soldiers.

Saying he was best-placed to fix mistakes cited by the commission, Olmert has weathered a protest rally attended by at least 100,000 people demanding his resignation and toughed out a call from his own foreign minister, Tzipi Livni, to step down.

Olmert faces the possible fracture of his coalition following a May 28 leadership election in the Labour Party. Two top Labour candidates have threatened to end its political partnership with Olmert's Kadima party over the war findings.

Olmert told the inquiry that Lieutenant-General Dan Halutz, the chief of staff who has since resigned over the military's failings in the 34-day conflict, had told him the armed forces were strong "and ready to carry out any mission".

A prime minister, Olmert said, could not be "a field commander" and had to rely on the military for expert assessments.

ROCKETS, BOMBS

During the fighting in July and August, the Israeli military failed to crush Hezbollah or stop the Iranian- and Syrian-backed militant group from firing some 4,000 rockets into northern Israel, attacks that forced a million residents into shelters.

Some 1,200 people, including about 900 civilians, were killed in Lebanon, where Israeli planes pounded southern Beirut neighbourhoods and other Hezbollah strongholds, while 117 Israeli soldiers and 41 civilians died.

The 89-page transcript of Olmert's testimony -- with portions including a telephone conversation with U.S. Secretary of State Condoleezza Rice on the first day of the war deleted by military censors -- drew renewed demands that he quit.

"He should have asked more questions and delved deeper into the small details," Yisrael Klausner, whose son Ohad was among the army's dead, told the NRG news Web site.

Zevulun Orlev, a legislator from the opposition National Religious Party, accused Olmert of trying to evade responsibility by placing blame on the army.

"He should take responsibility now for his failings and resign," Orlev told reporters.

Olmert has said Israel came out ahead in the conflict after a U.N.-brokered ceasefire under which a strengthened international peacekeeping force deployed in southern Lebanon, a Hezbollah stronghold. Hezbollah said it had won the war.

"I believe, I still believe today, that my approach was correct," Olmert testified, pointing to what he described as the dangers Israel would have faced from a more powerful Hezbollah in the future had it not taken on the group last year.

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