The Israelis, of course, deny the crap out of it. The Foreign Ministry and Olmert's office both decry the report as utter nonsense.
Well, what do you think they're going to say?
Boys and girls, if you think Israel doesn't have about ten different methods for dealing with Iran's coming nuclear arsenal on the books, you are living in a dream world. Further, if you think none of those methods includes a nuclear option, please send me some of whatever it is you're smoking.
The Israelis have been thinking, and planning, about this possibility for a lot longer than Iran has been publicly working on a nuclear program. The Israelis have probably spent a fair amount of time thinking about Libya becoming a nuclear power, the Egyptian government being overthrown by radical Muslims, the Saudis turning off the oil spigot, and the Peruvians going neo-Nazi (well, maybe not that). When you're a country of seven million (approx 5 million of whom are Jewish) living amongst hundreds of millions of Arabs, many of whom want you living somewhere else at best, dead at worst, you tend to plan for all sorts of contingencies.
Especially when you got caught with your pants down as recently as 33 years ago, and you came pretty close to the ultimate nightmare.
I don't doubt the veracity of the story. My only question is, Why did it get leaked?
I think Ha'aretz defense columnist (and Tel Aviv University professor) Reuven Pedatzur is on to something when he says:
I refuse to believe that anyone here would consider using nuclear weapons
against Iran. It is possible that this was a leak done on purpose, as
deterrence, to say: ’Someone better hold us back, before we do something crazy.'
There's no doubt in my mind the Israelis want the Iranian nuclear program stopped by diplomatic, internationally-sponsored efforts. But, you better believe that, if the world can't stop the Iranians via diplomacy, the Israelis will stop them via force.