Israel denied a report that appeared in Britain's Sunday Times that Israel had plans to attack Iran in March 2006, though officials conceded that they would not rule out a military strike if Iran advances in efforts to develop nuclear weapons.
Sharon's inner Cabinet authorized the attack in a meeting last month, the newspaper said.
Prime Minister Ariel Sharon's national security adviser, Giora Eiland, dismissed the report as "unfounded speculation."
"Israel is acting against Iran through diplomatic means," he said.
Vice Premier Ehud Olmert, a close confidant of Sharon, called the report "ridiculous."
Israel has identified Iran as the greatest threat to the Jewish state and rejects Iran's claims that its nuclear program is solely for peaceful purposes. Recent calls by Iranian President Mahmoud Ahmadinejad to "wipe Israel off the map" and move the Jewish state to Europe have only added to those concerns.
"Israel can't live in a situation in which Iran has the atomic bomb," Foreign Minister Silvan Shalom said Sunday.
Sharon has said that Israel won't lead the international battle against the Iranian nuclear program, and officials say all diplomatic means must be exhausted before military action is considered.
Maj. Gen. (res.) Amos Gilad, head of diplomacy for the Defense Ministry, said Sunday that Israel hasn't ruled out a military strike if Tehran advances with its nuclear program.
"Right now the situation requires focus on the international issue of protecting world," Gilad told Israel Radio.
Sharon said earlier this month that the ability to take out Iran's nuclear program by force "of course exists."
Iran's top nuclear official said Saturday that his country would enrich uranium and produce nuclear fuel, despite the US-led international drive to curb such efforts. But in a bid to curb US criticism, Iran on Sunday offered the US a share in building a new nuclear power plant in southwestern Iran.
Though Israeli officials say a strike against Iran is not on the horizon, Israel is expanding its military arsenal to deal with the threat. It has acquired dozens of warplanes with long-range fuel tanks to allow them to reach Iran and signed a deal with Germany for two submarines reportedly capable of firing nuclear missiles.
Israeli warplanes destroyed an Iraqi nuclear reactor in 1981, but experts say a similar strike would be difficult because of the dispersed nature of Iran's nuclear program.
The chairman of the parliamentary Foreign Affairs and Defense Committee, Yuval Steinitz, suggested that Israel knew where Iran was conducting its nuclear program.
"Israel has acted well in regards to intelligence and deployed accordingly," Steinitz told Army Radio. But he would not say if Israel should strike these areas to halt the Iranian program.