JERUSALEM, Nov 15 (Reuters) Israel is quietly preparing for the possibility of a nuclear-armed Iran despite public pledges to deny its arch-foe the means to pose an ''existential threat'', Israeli political and defence sources said today.
They said Prime Minister Ehud Olmert has instructed cabinet officials to draft proposals on how Israel, whose security strategy is widely assumed to hinge on having the West Asia's only atomic arsenal, might deal with losing this monopoly.
Tehran denies seeking the bomb but its open hostility to the Jewish state and speculation about Israeli or US pre-emptive strikes on its nuclear sites have stirred regional war jitters.
Olmert has endorsed US-led efforts to curb Iran's atomic ambitions through UN Security Council sanctions. He has also hinted that Israel, which bombed Iraq's nuclear reactor in 1981, could similarly hit Iran if diplomacy is deemed a dead end.
But two senior Israeli sources with knowledge of the Olmert government's defence planning said a secret memorandum was being prepared about ''the day after'' Iran has own atomic warheads.
''There are long-term ramifications to be addressed, like how to maintain our deterrent and military response capabilities, or how to off-set the attrition on Israeli society that would be generated by fear of Iranian nukes,'' one source said.
An Israeli government spokesman declined comment.
Ami Ayalon, a minister in Olmert's security cabinet, refused to discuss classified policy-making in an interview with Reuters but said Israel should pursue a three-pronged approach to Iran.
''First, we must make clear that this is a threat not just to Israel, but to the wider world. Second, we must exhaustively consider all preventive options. And third, we must anticipate the possibility of those options not working,'' Ayalon said.
''MUSLIM BOMB'' Iranian President Mahmoud Ahmadinejad has called for Israel to be ''wiped off the map'' but many analysts do not expect he would seek open confrontation. They say that if Tehran does want a bomb, it is primarily for power-projection in the face of the US ''regime-change'' campaigns in the region.
Even in Israel, some experts argue that a nuclear-armed Iran would likely be felt indirectly -- in emboldened sponsorship of armed groups like Lebanese Hezbollah or Palestinian Hamas, or sabre-rattling aimed at denting the Jewish state's economy by scaring away investors and immigrants.
Israel's air force is training for long-range strikes, but Iran's nuclear sites may be too distant, numerous and fortified for it to tackle alone. After Hezbollah rocket salvoes during last year's Lebanon war, Israel is also in no rush to trigger Iranian retaliatory missile strikes against its home front.
And while there is speculation Israel's US ally could take the lead in any future military attack on Iran, the Bush administration may be overly mired in Iraq to venture a new war.
Israeli Defence Minister Ehud Barak, during a meeting with his US counterpart Robert Gates last month, appeared to play down the potential impact of Iran joining the nuclear club.
''There is already a Muslim bomb,'' an Israeli source familiar with the talks quoted Barak as saying, in reference to Pakistan.
Barak has championed Israel's development of a ballistic defence system to fend off any future Iran nuclear strike.
Israel is also building up a fleet of German-made submarines which are believed to carry nuclear missiles, a message that any catastrophic Iranian attack would be repaid in kind.
Under a ''strategic ambiguity'' policy billed as warding off enemies while avoiding arms races, Israel neither confirms nor denies having weapons of mass-destruction. But some analysts predict the Israelis would go public with at least some of their capabilities to persuade a nuclear-armed Iran it is outgunned.
REUTERS PD BST1717