Under the contract signed in July, the two Dolphin-class submarines, called U212s, will be assembled in Germany and fitted with a propulsion system allowing them to remain underwater for far longer than submarines already in use by the Israel navy, the Jerusalem Post said.

The state-of-the-art submarines, manufactured by Howaldtswerke-Deutsche Werft AG, will be bought by Israel for 1.27 billion dollars, a third of which will be financed by the German government, the English-language daily said.

The U212s are designed for a crew of 35, have a range of 4,500 kilometers (2,810 miles) and can launch cruise missiles carrying nuclear warheads, the paper quoted the Jane's Defense Weekly as saying.

Israel's defense ministry said it was unable either to confirm or deny the report.

The navy already has three German submarines -- the most expensive weapon platforms in Israel's arsenal that are also thought to be able to carry nuclear weapons.

Israel has never acknowledged possessing a nuclear arsenal although it is widely believed to have one.

Germany donated the first two submarines after the 1991 Gulf War and split the cost of the third with the Jewish state.

The Jerusalem Post also said the navy was considering installing an underwater sonar system off the coast to detect foreign submarines.

In November 2004, Israel spotted a mystery submarine in its territorial waters, which a naval official said was a foreign vessel on a spying mission.

The report of the sub purchase came a day after a cabinet minister and former Mossad spy warned Israel should prepare for a ballistic missile attack by Iran, its arch enemy and one of chief supporters of Hezbollah, against whom Israel waged the month-long war in Lebanon.

"Iran has threatened to attack us with its ballistic missiles and we should prepare behind our lines and civilians for such an attack," said Pensioner Affairs Minister Rafi Eitan, who is a member of Israel's security cabinet.

A senior cleric in the Islamic republic -- facing a showdown with the West over its nuclear programme -- has warned that if Iran is attacked by the United States and Israel, it will retaliate with ballistic missiles aimed at Tel Aviv.

Israeli officials have accused Iran of orchestrating Hezbollah's cross-border raid on July 12 that sparked the Lebanon war in order to draw the world's attention from Tehran's nuclear program.

They now fear that Israel's failure to destroy the guerrilla Shiite militant group during the war -- widely celebrated across much of the Middle East as a resounding defeat for the Jewish state -- will further boost the confidence of Iran, whose leaders have called for Israel to be destroyed.

"The strategy of applying pressure to Israel and the West through their Lebanese satellite Hezbollah, as a counterweight to the threats against them, achieved great success over the past month from their perspective," wrote Maariv, the nation's second-largest daily.

"Therefore they have no reason to fold now," it said.

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