The warning followed a war of words between Washington and Tehran, after the US assassinated top Iranian military commander Qasem Soleimani on Friday.

"If America takes any measure after our military response, we will turn Tel Aviv and Haifa to dust," said Mohsen Rezai, who heads Iran's Expediency Council, a top state body.

But in the coastal city of Tel Aviv, Katz doubted Tehran would follow through with the threat.

"There shouldn't be any confrontation or war between Israel and Iran, we don't have a common border," he told AFP.

"I am not afraid of the Iranian threat, Israel is much stronger, Iran will be the main loser."

Rezai's threat against Israel, a key ally of Washington, comes after President Donald Trump said the US would hit dozens of Iranian sites if Tehran attacked American personnel or assets.

But after years of warnings from Israel's arch enemy, in Tel Aviv an attack was seen as unlikely.

"I assume they will not attack us because their business is mainly with the Americans," said Benny, who did not give his surname.

"Although they've hated us for years, they have huge troubles. We have our defence abilities," he told AFP on the seafront.

- 'A great provocation' -

Israeli Prime Minister Benjamin Netanyahu cut short a foreign visit and security chiefs held emergency talks after the killing of Soleimani.

Preparing for "a variety of scenarios" was advisable, the Institute for National Security Studies (INSS) in Tel Aviv said in a report released Monday.

They include an "escalation of events up to a confrontation with the US, in which Israel could also be involved."

Orna Mizrahi, a senior research fellow at the institute, said she doubted Tel Aviv or Haifa would be the main targets of Iran's response.

"A lot of the time they are talking about (how) they are going to destroy Israel... but they are very careful not to do it," she told AFP.

Attacking Israeli cities would represent "a great provocation which can cause a very large-scale military conflict with Israel. I don't think this is what they would like now."

Hezbollah chief Hassan Nasrallah said the US military would "pay the price" for Soleimani's killing, but did not call for attacks on the group's foe Israel.

"The only just punishment is (to target) American military presence in the region," he said on Sunday.

The Israeli government has remained tight-lipped in recent days, with Netanyahu saying Friday that both Israel and the US have "the right of self-defence".

Rachel Suissa, a research fellow at the National Security Studies Center at the University of Haifa, said the silence over Rezai's threat was deliberate.

"The Israeli government is staying quiet to the threat as a calculated flexible strategic policy, depending not only on the American decision-making," she told AFP.

With world leaders calling for calm, in Tel Aviv Katz remained confident neither Washington nor Tehran would seek further conflict.

"Personally, I think in war, there are only losers and eventually everybody will be smart, and nothing will happen," he said.