Can Z3 generate Craig interpolants (at least for propositional logic ?). I have not found it in the documentation of Z3.
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No, Z3 does not support Craig interpolants, but it generates proofs. The interpolants can be extracted from the proofs. Ken Mcmillan is developing an interpolant generator on top of Z3 using this approach.

Leonardo de Moura
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Thanks for your reply. Do you know about the project status? Will it be finished in a couple of days, weeks, months? – Andreas Morgenstern Aug 11 '11 at 09:56
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Ken's interpolating decision procedure is already being used. He will eventually make it available on the MSR website. For now, he releases it on an individual basis. You can contact him to get his procedure. – Leonardo de Moura Aug 11 '11 at 19:00