Israeli threats to Iran seen as bluff -- for now

By Alistair Lyon, Special Correspondent - Analysis

BEIRUT (Reuters) - Israel seems content to keep Iran and the rest of the world guessing uneasily about whether and when it might attack the Islamic Republic's nuclear facilities.

It has done little to douse speculation stoked by a big Israeli air force exercise last month, an Israeli cabinet minister's remark that military action was "inevitable" and a prediction by former U.S. official John Bolton that this might occur in the final weeks of President George W. Bush's term.

Iran derides the chatter as "psychological warfare" and threatens dire retaliation if any assault materialised.

Gulf Arab states whose oil exports could be among Iranian reprisal targets shuffle nervously, as crude prices push higher.

"Should Israel be stupid enough to attempt an attack on Iran, as has been repeatedly threatened, then of course Tehran has the perfect right to retaliate in kind," wrote the Dubai-based Gulf News daily in its editorial on Monday.

"But it does not quell the existing nervousness of people in the region by Iran stating that as part of its retaliation it would block ... Gulf oil routes," the newspaper added.

The Israelis may believe that mere talk of military action can spur Iran to alter its behaviour, or at least prompt tougher international action to induce Tehran to curb its nuclear quest -- which the Iranians say is only to produce energy, not bombs.

Ephraim Kam, deputy director of the Jaffee Centre for Strategic Studies at Tel Aviv University, said Israel preferred for now to let diplomatic pressure run its course.