The assessment, to be presented to ministers next month as part of the National Security Council's annual review, also calls for Israel to prevent new Palestinian elections at all costs, even at the expense of a row with its US ally, the Israeli daily Haaretz reported on Sunday.
Defense chiefs put "Iran's threat to Israel's survival" at the top of the list of challenges they face, followed by the "strategic threat" of long-range missiles and rockets from various countries in the region.
"Israel faces these threats almost alone," Haaretz quoted the report as saying. "It is imperative to mobilize the international community and obtain regional cooperation. The new American administration is an opportunity to do this."
They call for Israel to establish a military option against Iran, in case other countries abandon the struggle, and advise the cabinet to "work discreetly on contingency plans to deal with Iran."
Their assessment also recommends close cooperation with the United States to prevent a deal between Washington and Tehran that would undermine Israeli interests.
The leaking of the report came as outgoing Israeli Prime Minister Ehud Olmert was due in Washington for talks with US President George W. Bush which were expected to be dominated by Iran.
Israel and its close ally the United States accuse Iran of seeking a nuclear weapon, while they have never presented any corroborative document to substantiate their allegations. Both Washington and Tel Aviv possess advanced weapons of mass destruction, including nuclear warheads.
Iran vehemently denies the charges, insisting that its nuclear program is for peaceful purposes only. Tehran stresses that the country has always pursued a civilian path to provide power to the growing number of Iranian population, whose fossil fuel would eventually run dry.
Washington is installing an advanced radar system in Israel to boost the Zionist regime's military capability against Iran. It will go operational in mid-December, the Israeli army radio reported on Saturday.
Speculation that Israel could bomb Iran has mounted since a big Israeli air drill in June. In the first week of June, 100 Israeli F-16 and F-15 fighters reportedly took part in an exercise over the eastern Mediterranean and Greece, which was interpreted as a dress rehearsal for a possible attack on Iran's nuclear installations.
Iran has, in return, warned that it would target Israel and its worldwide interests in case it comes under attack by the Tel Aviv.
A US attack on the Syrian village of Sukkariyah on October 26, has also raised speculation about the likelihood of a US unilateral strike on the Islamic Republic.
The United States has also always stressed that military action is a main option for the White House to deter Iran's progress in the field of nuclear technology.
Iran has warned it could close the strategic Strait of Hormoz if it became the target of a military attack over its nuclear program.
Strait of Hormoz, the entrance to the strategic Persian Gulf waterway, is a major oil shipping route.
Meantime, a recent study by the Institute for Science and International Security (ISIS), a prestigious American think tank, has found that a military strike on Iran's nuclear facilities "is unlikely" to delay the country's program.
Defense chiefs also warn that Western-backed Palestinian president Mahmud Abbas might disappear from the political arena when his term ends on January 9, undermining prospects for a two-state solution to the Middle East conflict.
They say there is a good change for the Islamist Hamas movement to repeat the landslide victory it won in 2006 parliamentary elections, and recommend "preventing elections in the Palestinian Authority, even at the cost of a confrontation with the United States and the international community."
Abbas's supporters insist that the Palestinian constitution allows the president to remain in office until new parliamentary elections are held in 2010, but Hamas insists it will not recognize his authority beyond January.
The Israeli Defense chiefs want plans drawn up for a major ground offensive in the Gaza Strip in the event of the collapse of the Egyptian-brokered truce with Hamas which went into force in June.
"If the truce collapses and conflict is resumed in the Gaza Strip, Israel must act to topple Hamas's rule there," Haaretz quoted them as saying.
Defense chiefs also urged Israeli vigilance about US arms supplies to its Arab allies, particularly Egypt and Saudi Arabia, warning that they could undercut Israel's "edge, especially in the air."