By Dan Williams

JERUSALEM, May 6 (Reuters) - When Egypt and Syria launched a surprise joint offensive in 1973, many Israelis braced for a fight to the finish.

But historians now agree that, for all their rhetoric about destroying the Jewish state, the attacking Arabs -- who were eventually repelled -- only intended to recapture the Sinai peninsula and Golan Heights, lands lost in a previous war. One reason posited for the restraint was belief in Cairo and Damascus that Israel could use atomic weapons if fighting spilled over from occupied territory and into home turf. For Israelis, it served as endorsement for preserving an exclusive, last-ditch nuclear defence. Today, this helps explain Israel's agitation over the prospect of arch-foe Iran busting up the monopoly with a nuclear programme of its own. Privately, Israeli officials acknowledge the immediate risk they see is not in an exchange of nuclear missiles with Iran, but in an increased chance of "classic" regional wars launched in the belief that Tehran has blunted Israel's strategic edge.

"In 1973, Israel's nuclear option transformed what could have been an existential war into a contained conflict," said Israeli military historian Michael Oren.

"A nuclear-armed Iran would risk transforming a contained conflict into a regional and global conflict," he said.

While Iran denies seeking nuclear weapons, its president, Mahmoud Ahmadinejad, has fuelled war fears by urging Israel's elimination and questioning whether the Holocaust happened.

Experts note that even if Iran gets the bomb, its primary goal may be to ward off any U.S.-led attack. It would also be many years away from achieving parity with an advanced Israeli arsenal believed to include between 80 and 200 atomic warheads.

But nuclear strategising begins with the binary distinction between countries that do and don't possess the ultimate weapon of mass destruction. One bomb is enough to join this "club", and membership confers enormous latitude in non-nuclear conflicts.

"Say that tomorrow Iran gets nuclear weapons, and issues the following ultimatum on Israel: Withdraw from the (Palestinian) West Bank or we will fire conventional missiles at you. Do we get into that sort of fight?" said one senior Israeli official with knowledge of nuclear affairs.

"The potential for extortion and major regional instability is mind-boggling," the official said.

NEIGHBOURHOOD BULLY?

While supporting Western diplomatic pressure on Tehran, Israel has made clear it considers preemptive strikes -- such as its bombing in 1981 of Iraq's main nuclear reactor -- as a legitimate last resort for curbing Iranian atomic ambitions.

Such unilateralism by Israel has long been denounced by its neighbours as a bullying byproduct of nuclear monopoly, though Israel does not confirm having weapons of mass destruction under an "ambiguity" policy billed as avoiding needless provocations. Some Middle East states cited Israel's arsenal in justifying their own arms races, or opted for indirect confrontation by cultivating anti-Israel proxies like Lebanese Hezbollah and Palestinian armed factions -- hardly recipes for stability.

"There is just one country with WMDs in the Middle East -- Israel. And in that case, perhaps in the near future, other countries will try -- and it is their right -- to protect themselves against such weapons," Arab League chief Amr Moussa, who has proposed a nuclear-free region, said in 2004.

Mustafa Alani, an analyst at the Gulf Research Centre in Dubai, said this preoccupation has been eclipsed, among Sunni Arabs at least, by fears over Shi'ite Iran's ascendancy. "The rationality of their leadership is in question," Alani said. "We don't want to go back to the day when the Shah of Iran declared himself the policeman of the region."

Alani said most Arabs have accepted, if grudgingly, Israel's rationale that its nuclear option is a defensive "last resort".

"Israel's existence is no longer in question," he said, pointing to Israeli-Arab peace initiatives. "You can pressurise Israel to a certain point, but not to the point of destruction."

Many Israelis attribute their slow rapprochement with the Arab world to their country's military superiority, proven in past wars, rather than any new ethos of coexistence.

Israeli mistrust will likely grow, given several Arab states' declarations they may pursue civilian nuclear programmes. There is also concern in Israel over Islamist militants that challenge moderate leaderships in Arab states -- especially Hezbollah, which, some analysts speculate, could one day be used by Iran to deploy tactical nuclear devices on Israel's border.

That being the case, Israel is in no mood to give up its nuclear monopoly, and drive to see it preserved, any time soon.

"Our policies have served us well so far, and there is no reason to embrace change," the Israeli official said.

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