By Ori Lewis

JERUSALEM, Jan 31 (Reuters) - Israeli newspapers forecast Prime Minister Ehud Olmert's survival on Thursday after a report criticised the army and his government's conduct during a 2006 war in Lebanon but offered him a political reprieve.

"The exoneration and the failure" was how mass circulation daily Yedioth Ahronoth described the outcome of the final report in a banner headline, with one columnist saying that Olmert could "breathe a sigh of relief".

The government-appointed Winograd Commission said political and army leaders had committed "serious failings" during the war against Hezbollah guerrillas in Lebanon. But it did not blame Olmert personally and endorsed key decisions he made.

Olmert's political rivals had been positioning themselves for a resignation that could have triggered an early election. But the report has widely been seen as a reprieve for Olmert, leaving him free to pursue new U.S.-backed peace talks with the Palestinians.

Olmert's office said he would implement the report's recommendations -- as he did after the panel made similarly damning judgments in an interim report last year.

"Even if Olmert is destined to go, at least the intolerable burden of the Winograd Commission has been lifted from his shoulders," wrote Sima Kadmon of Yedioth.

When presenting his findings on Wednesday, retired Supreme Court justice Eliahu Winograd said: "We found serious failings and shortcomings in the decision-making processes and staff work in political and military structures."

A poll in the Maariv daily said Olmert's popularity had been boosted, with 42 percent of respondents wanting him to stay on as prime minister, compared to only 17 percent after the interim report was issued in April.

The Haaretz broadsheet led with the headline "Olmert: The moral stain has been lifted from me" -- a quote from one of the prime minister's confidants. He was also quoted as saying: "Justice has finally prevailed".

Haaretz columnist Yossi Verter wrote that Olmert's "opponents will find in the report innumerable reasons to demand his resignation -- as they did before. His supporters will find many justifications to demand that he should stay, repair and atone for his sins -- as he did before."

The English language Jerusalem Post said in its banner headline that "Winograd savages the flawed planning and deficient strategy of a 'failed' war" and added that "Tempered critique of Olmert deflates pressure to oust him". (Writing by Ori Lewis; Editing by Dominic Evans)

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