(Corrects date of item issued on Monday to Sept. 3)

JERUSALEM, Sept 3 (Reuters) - Israel unveiled a comprehensive plan on Monday for overhauling its armed forces in the wake of last year's bruising Lebanon war and ahead of any possible showdown with arch-foes Iran or Syria.

Buoyed by the Bush administration's pledge last month to boost U.S. defence grants to Israel to $3 billion annually, military chief Lieutenant-General Gabi Ashkenazi outlined upgrades and retraining for Israeli air, ground and naval units.

The plan -- which awaits government approval -- "will bolster the Israel Defence Forces and their suitability for dealing with security challenges that will face the country in the next five years," Ashkenazi said in a statement.

Israel spends around 10 percent of its gross domestic product, or $15 billion, on a military long reputed to be the Middle East's mightiest. But setbacks in the offensive against Lebanese Hezbollah guerrillas spurred calls for a major review.

Israel describes Iran and its nuclear programme as an "existential threat", though the Islamic republic denies seeking an atomic bomb. The rhetoric has stoked international fears of war between Israel, which is assumed to have the region's only atomic arsenal, and Iran, with Syria possibly being drawn in.

Ashkenazi said Israel would order an unspecified number of the U.S.-made F-35 Joint Strike Fighter, an advanced strategic warplane expected out in the next decade. Until then, Israel will upgrade its fleet of jets, combat helicopters, and drones.

Israel also plans to complement its Arrow II units, built to shoot down ballistic missiles, with Iron Dome, a system designed to tackle short-range rockets like those favoured by Iranian-backed Hezbollah and Palestinian militants in Gaza.

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