Israel tested a missile on Thursday, prompting Iran to vow retaliation if the Jewish state carried out recent veiled threats to launch strikes, possibly atomic, against Tehran's nuclear facilities.
Israel is widely assumed to have nuclear warheads and missiles able to hit Iran. It gave no details of the trial. A defence official said it was "not just flexing its muscles", three days after Prime Minister Ehud Olmert pledged to consider "all options" to prevent Iran building nuclear weapons.
As oil prices rose almost 1 percent on the new Middle East tension, Iranian President Mahmoud Ahmadinejad, who says his country wants only atomic energy, said Israel would hold off: "The Zionist regime ... would not dare attack Iran," he said.
"The Iranian response would make them regret it. They know this," he told Al Jazeera in remarks translated into Arabic.
Israeli Foreign Minister Tzipi Livni urged the West to work harder to prevent "the appearance of a nuclear Iran", a message Olmert and his team rammed home to George W. Bush when the U.S. president visited Jerusalem a week ago on a regional tour aimed partly at rallying Arab states against Tehran.
Israel, Washington's closest Middle East ally, says Iran could have a bomb by 2010 that would threaten its existence. Iran has also carried out tests of long-range missiles.
Israel was dismayed by a recent U.S. intelligence report that said Tehran halted its nuclear weapons programme in 2003. The report fuelled speculation Israel might attack Iran on its own if U.S. public opinion prevented Bush from doing so.
Israel bombed a site in Syria in September, an attack that recalled its 1981 strike on Saddam Hussein's Iraqi nuclear reactor. But many analysts say Olmert's political weakness makes a pre-emptive, unilateral attack on Iran unlikely.
Israel's Defence Ministry said: "A successful missile launch was carried out within the framework of examining rocket propulsion." It gave no other details and one former official in Israeli missile defence said the timing might be coincidence.
Israel Radio said the missile tested was able to carry an "unconventional payload" - an apparent reference to the nuclear warheads Israel is assumed to possess.
Israel Radio, which operates under military censorship, quoted unidentified foreign reports as saying Israel was developing a long-range surface-to-surface missile, Jericho III.
