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The Times reported that leading Israeli military and defence experts last week conducted a simulation of scenarios likely to occur in this event.
The experts are from Israel's Institute for National Security Studies, a think tank with close connections to the government. Their report has been sent to the Prime Minister, Benjamin Netanyahu.
The simulation exercise was conducted in Tel Aviv last week by several of Israel's former defence and intelligence officials. Its conclusions suggested that a nuclear test by Iran would radically shift the power balance of the Middle East.
The report came as the UN nuclear watchdog, the International Atomic Energy Agency, said Iran had begun enriching uranium at its underground Fordow site to 20 per cent - the required level for a nuclear weapon.
Iran insists that its nuclear program is for civilian purposes, but analysts say enrichment is required only to 3 per cent for energy purposes.
The Iranian envoy at the IAEA said last night that Western expressions of alarm over uranium enrichment just started at Fordow were "politically motivated".
"These reactions are exaggerated and politically motivated and have been made over previous years," Ali Asghar Soltanieh was quoted as saying by the ISNA news agency.
The US yesterday repeated its warnings to Iran to cease activity related to nuclear weapons.
State Department spokeswoman Victoria Nuland said: "We call on Iran once again to suspend enrichment activities, co-operate fully with the IAEA and immediately comply with all Security Council and IAEA board of governors resolutions".
Britain also reacted to the latest IAEA report, joining the US in its condemnation of Iran.
British Foreign Secretary William Hague said: "(The Fordow plant) is a provocative act which further undermines Iran's claims that its program is entirely civilian in nature."
Critics of Iran's claim that its program is only for civilian purposes argue that as the second-largest producer of oil Iran does not need nuclear energy.
Iran will not allow IAEA inspectors access to its nuclear plants, some of which have only been revealed due to surveillance by Western powers.
The EU will bring forward to January 23 a meeting to vote on an oil embargo on Iran.
US and Israeli officials have for the past two years been discussing an Israeli military strike on Iran.
One Israeli official familiar with those talks told The Australian that during that time the US had urged Israel not to make any strike while the US still had troops in Iraq for fear US troops would be hit with a backlash by Iranian-backed fighters in Iraq.
While the official played down any imminent strike, he conceded that no Israeli prime minister would want to be the leader at a time when Iran became a nuclear power. Iran's leaders have repeatedly called for Israel to be "wiped from the map".
Supreme Leader Ali Khamanei yesterday said Iran would resist "the demands and bullying of superpowers and their allies."
"The strong decision of the sacred Islamic republic is not being diverted from the path it has taken," he said.
The Israeli specialists involved in the simulation exercise detailed by The Times assumed the US would try to restrain Israel from military retaliation and propose a formal defence pact, including possibly inviting Israel to join NATO.
They concluded Russia would propose a defence pact with the US to stop nuclear proliferation in the Middle East; Saudi Arabia would develop a nuclear arms program; Egypt would push for military action against Iran while Turkey would be likely to avoid a showdown with Tehran; and if Israel were to become a member of NATO, Turkey would withdraw.
The Times said the specialists concluded that although Israel would come under pressure to abandon military plans against Iran, it would retain this option.
Original piece is http://www.theaustralian.com.au/news/world/israel-prepares-for-iran-nuclear-weapons-test/story-e6frg6so-1226241165404