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I don't know how may extra copies of Yedioth Ahronoth were sold when the newspaper's headline this week read, "The Iranian threat - the missile that can hit every house in Israel;" but the headline writers certainly deserve the panic prize from Ayatollah Ali Khamenei.

Suddenly, Israel has discovered the Shihab-3. For 10 years, every test of the missile has been tracked from here. The same headline could have been used a long time ago about Syrian missiles equipped with chemical warheads that cover all of Israel, or about the Iranian- and Syrian-supplied Hezbollah rockets that cover all of the north to Haifa and even further.

The real Israeli answer to the Shihab-3 is not the Arrow anti-missile missile system. It might be an important defensive belt, but it won't deter the Iranians from striking at Israel. In deterring a country like Iran, where the leadership defines itself as an enemy of Israel, the determining factor is Israel's strategic arm. Israel does not need to use threats like the ayatollahs. Tehran and other places know this arm exists. The irony is that the treasury is now a greater threat to this arm than Tehran.

So, what can be learned from the Iranian muscle-flexing, such as the latest test of the Shihab-3 and the declaration attributed to Khamenei that it is part of the answer to the Palestinian problem?

The immediate conclusion is that the Iranian regime is making a mockery of the U.S., the International Atomic Energy Agency and many others. It is working on two separate and contradictory levels - words and deeds. Meanwhile, in the West, on the other hand, they are only using words.

The best example of this is the wide range of Iranian activities against the U.S. in Iraq. On the one hand, the Iranian regime is trying to engage the Americans in a dialogue. On the other, Tehran is moving large sums of money to Iraq to influence elements there to harass the Americans and incite the Shi'ites. The emphasis has moved from Hezbollah in Lebanon to the anti-American activity in Iraq. Qassam Sulimeini, in charge of exporting the revolution, is in charge of the effort. Washington knows the details, but is responding slowly.

Another example is the Iranian nuclear activity. Iran was vehemently criticized at the June session of the IAEA in Vienna for violations of agreements it signed with the agency, and it was required to allow closer supervision of its nuclear facilities.

Presumably, the upcoming IAEA sessions in September will also include renewed criticisms of Iran, and the issue may move to the UN Security Council. Nonetheless, there is evidence that the Iranians are continuing their military nuclear development, while claiming that it is developing sources of energy for civilian purposes.

Lately, there have been serious suspicions that Pakistan is the source of the technology transfer of know-how for manufacturing uranium-enriching centrifuges. As far as the U.S. is concerned, this is grave information, since Pakistan is a friendly state.

The question that remains open is whether it was done with the knowledge of Pakistan leader General Pervez Musharraf. If Pakistani elements did it without his knowledge, it is a sign of Pakistan losing control over important nuclear know-how.

Such nuclear leakage is what should worry Israel. In the future, the trend could lead to connecting a nuclear warhead to missiles - and not necessarily the Shihab-3. According to experts, loading a nuclear warhead on such a missile requires a higher technology because it requires a small bomb, no larger than 400 kilograms.

Meanwhile, Iran continues to encourage Palestinian terror in the territories, aimed directly against Israel. At this stage, it is being done through a Hezbollah connection to Fatah gangs. It would be interesting to the Iranian reaction if Israel were to aid Iranian opposition groups such as the Mujahedeen-e-Khalq.