The warning came in an annual intelligence report delivered by the heads of the Mossad overseas spy agency, domestic Shin Beth intelligegence service and representatives from army intelligence.
Israel's military intelligence chief General Aharon Zeevi Farkash said earlier this month he believed Iran could build a nuclear weapon by 2007 but Wednesday's report comes with the seal of approval from all the main intelligence agencies.
Iran is now regarded as Israel's number one enemy since the fall of Saddam Hussein's regime in Iraq and intelligence chiefs have increasingly voiced fears about Tehran's nuclear ambitions.
Earlier this week, one military intelligence officer accused Iran of resuming suspect nuclear activities linked to the production of enriched uranium which can be used to build atomic bombs.
The officer said Iran's activities -- which he did not specify -- contravened commitments by Tehran to the UN nuclear watchdog the International Atomic Energy Agency.
Iran has announced it would resume the assembly of centrifuges -- used to enrich uranium in the most sensitive part of the fuel cycle -- but said it was committed to an accord to allow tougher IAEA inspections, make a full declaration of its activities and suspend enrichment itself.
The IAEA is probing allegations that the country is using power generation as a cover for a secret weapons drive but Tehran insists its programme is solely aimed at meeting the future energy needs of a burgeoning population and freeing up its oil and gas resources for export.
Unlike Israel, which is widely thought to possess up to 200 nuclear warheads, Iran has signed up to the IAEA's nuclear non-proliferation treaty (NPT).