Why is Iran (nuclear or otherwise) such a threat to Israel? Iran has quite a few internal and border problems which are far more pressing than far away Israel/Palestine. It may be convenient for their government to "blame Israel" for everything in an attempt to shift focus from their own shortcomings, but most Iranians recognize that this is just talk and is not getting them any closer to resolving their own problems. As for a nuclear armed Iran, the US and Soviet Union went through decades of 'mutually assured destruction' without either side pushing the button. True one bomb could effectively destroy Israel, but I think that it is safe to say that Iran doesn't want to see all of their cities destroyed in retaliation.
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from the article: Livni behind closed doors: Iran nukes pose little threat to Israel