[BluffTHIS!]

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or should Israel just laugh this off?

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No because Israel's enemies only have to be massively successful once, and nuclear weapons would give them that ability. So since it is in Israel's interest not to allow this capability to come about, they should use the political cover of Iran's threats as a justification to the international community for doing so.

Since a democratic post-Saddam Iraq is no credible threat to Iran, the only two countries who are threats are the US and Israel. They could avoid that threat by discontinuing their nuclear weapons program and by not funding terrorist organizations as they have in Lebanon for years. But they don't want to do that. And now they have verbally escalated the stakes as well.

So Israel will take action in time no doubt and the US will give them access to satellite intelligence to aid them in that endeavour. And then of course all the idiot uneducated mullahs will cry jihad and the islamic masses will spill into the streets in the usual orgy of rioting and burnings of effigies. And as always, those ignorant masses will never ask the question of why don't the rich oil states spend their billions on improving the lot of the average person in the middle east instead of paying stipends to suicide bombers' families and such while the elite saudi princes live out their hedonistic self-absorbed lives in luxury.