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Israel and Iran are liable to enter into a confrontation or a crisis sometime this year due to Tehran's progress in its nuclear weapons program and Jerusalem's determination to thwart it, the head of U.S. intelligence told lawmakers on Thursday.

In a report to the Senate Intelligence Committee on the potential threats as foreseen by the 16 intelligence arms of the United States, Dennis Blair said that Hezbollah, the Lebanese-based Shi'ite group which is backed by Iran, has beefed up its weapons arsenal in preparation for another round of fighting with Israel.

Blair said Hezbollah presents a formidable threat to U.S. interests, particularly if the organization feels Washington directly threatens Iran or acts against the group's targets, infrastructure, and leadership.

According to the intelligence assessment, Fatah has been weakened and is likely to enter Palestinian Authority elections mired in disunity and factionalism.

Blair added that a key challenge for the new Obama administration will be strengthening the moderates in the Arab world, in particular among the Palestinians, as well as the possible renewal of Israeli-Palestinian peace talks. The task is even more daunting against the backdrop of the recent fighting in Gaza, which is likely to diminish the chances of peace in the region.

So long as Hamas rules Gaza and Hezbollah solidifies its hold on southern Lebanon, an Israel-Palestinian agreement becomes more difficult to reach, Blair said. Nonetheless, the former admiral recommended that the U.S. invest greater effort in advancing the peace process so as to create opportunities for the U.S. to engage in dialogue with wide swaths of the Arab public, particularly those with nationalistic and Islamic tendencies.

Blair noted that North Korea, which aided Syria in the construction of a nuclear reactor which was destroyed by Israel, is likely to resume exporting nuclear technology to a number of countries.

The intelligence chief added that Syrian President Bashar Assad wisely managed to cement his control over the country by relying on the traditional levers of power which he inherited from his late father, Hafez Assad. Assad has also widened his base of support by naming close associates to key posts in the Syrian ruling apparatus.