Although Israel argues that it wants to see strong diplomatic pressure put on Iran, it is reluctant to rule out the threat of a unilateral military attack. Matan Vilnai, Israel's deputy defence minister, told Army Radio today: "No option needs to be off the table."

Avigdor Lieberman, the hard-right deputy prime minister, said Israel should be ready to act if sanctions did not work. "If they don't, we will sit and decide whatever we have to decide," he told the Jerusalem Post in an interview today.

Several of Israel's Iran experts say the American rethink on the threat posed by Iran had ruled out a US military strike and probably an Israeli strike too, at least for now. However, Israel's political hawks continue to keep the threat of action alive.

Binyamin Netanyahu, the popular rightwing opposition leader, was asked whether Israel should launch its own military operation. "We always prefer international action, led by the United States, but we have to ensure that we can protect our country with all means," he told the Israeli newspaper Ha'aretz today.

The repercussions of the new US intelligence assessment are consuming Israeli politicians, analysts and the press. Although Israeli leaders had been briefed in advance, the national intelligence estimate (NIE) which was declassified and published on Monday, brought surprise and frustration in Israel's defence establishment.

In a marked shift from earlier assessments, the NIE said Iran had halted its nuclear weapons programme in autumn 2003 and had not restarted it. America's intelligence agencies said they now did not know whether Iran intended to build nuclear weapons.

Israeli officials quickly offered a direct challenge. Ehud Barak, the defence minister, said although Iran's nuclear programme was halted in 2003 "as far as we know it has probably since revived it".

It is, however, far from clear whether Israel has its own unique intelligence on Iran strong enough to contradict the American findings. Ha'aretz noted in an analysis today: "It wasn't in the intelligence arena that Israel suffered a blow this week, but rather in the public opinion arena."

Some have suggested that with Israel feeling isolated by its hardline stance on Iran, it might be more inclined to launch a unilateral military strike and a comparison is frequently drawn to Israel's 1981 bombing of Iraq's Osirak nuclear reactor. David Albright, a former UN nuclear inspector, said this week if Israel felt its "red line" had been crossed it might strike. "They may force a military confrontation," he told the Associated Press agency.

However, it is widely assumed Israel would need at least American approval if not cooperation for any bombing mission. In particular, Israel's air force would need the US flight codes that would allow its planes to cross safely into Iran. When Israel requested those codes in 1991, to attack Saddam Hussein's Iraq during the first Gulf War, the United States refused and there was no Israeli strike.

Yet Israel, the only nuclear power in the region, is not shy of acting alone and has been heartened by the lack of international censure over its bombing raid in northern Syria in September, which may or may not have targeted a Syrian nuclear installation.

Israel's Iran experts argue that the US intelligence assessment did not wholly exonerate Tehran - they point to evidence of a continued enriched uranium programme which has only limited civilian use - but they admit that for now an Israeli military operation is unlikely.

"I think it is quite unrealistic to think Israel will go it alone against Iran in a military way," said Ephraim Asculai, a senior research fellow at the Institute for National Security Studies in Tel Aviv. He said it appeared Iran would respond to a tougher sanctions regime that demonstrated to Tehran that the cost of its nuclear ambitions outweighed their benefits.

Meir Javedanfar, an Iranian-born analyst based in Tel Aviv, said there was also a chance Israel might pursue a peace agreement with Syria, in an effort to divide Damascus from Tehran and further isolate the Iranian regime. "The quickest route to isolate Iran is through Damascus," he said.