THERE HAS been a lot of scary talk over the last week emanating from all sides in the escalating crisis over Iran's disputed nuclear programme. Only yesterday, a senior Iranian official upped the ante yet again with a warning that the Islamic Republic would destroy Israel and 32 US military bases in the Middle East if Washington made the "smallest move" against Iran.

"The capability of the Islamic Republic of Iran is to the extent that if the US fires a missile, Iran would be able to destroy Israel and US military bases in the region with its missiles before the dust from the US missile settles," warned Mojtaba Zolnour, a cleric and deputy of supreme leader Ayatollah Ali Khamenei's representative in Iran's elite Revolutionary Guards.

Throughout this long standoff, Iran has insisted its nuclear projects are aimed solely at generating electricity. But Western nations and Israel fear the Islamic Republic is seeking to build bombs.

Washington says it wants diplomacy to end the row, but has not ruled out military action. Israel, meanwhile, has sworn to prevent Iran from emerging as a nuclear-armed power.

As ever, the alternative strategies for resolving the crisis boil down to either diplomacy or military action.

Here, we look at the implications of both ways forward as the Middle East stands again on the brink of a potentially catastrophic confrontation.

OPTION 1: MILITARY ACTION
Tensions in the Gulf were cranked up a further notch last week when the Iranian Republican Guards fired a number of missiles capable of hitting targets in the Middle East, including Israel. Although it was not the first time that the Iranians had carried out a test-firing, and the missile involved, the Shahab-3, is little more than a development of the obsolescent North Korean No-Dong-1, the fact remains that they chose to carry out the exercise in a very ostentatious way. As a US diplomatic source put it: "This wasn't another round of war games, it was a direct threat to Jerusalem saying hold your hand or we'll use ours; the finger hasn't left the trigger."

Unsurprisingly, the action met with immediate condemnation in Israel. Defence minister Ehud Barak claimed that while diplomacy was not yet dead, he would be taking steps to guard his country against an uncertain future. "Currently the focus is international sanctions and vigorous diplomatic activity, and these avenues should be exhausted," he said. "Israel is the strongest country in the region and has proved in the past it is not afraid to take action when its vital security interests are at stake."

His message was clear. While Israel would sign up to any diplomatic initiative, it would not allow its territorial integrity to be violated by Iran. During its 60 years of existence, Israel has shown itself to be well capable of defending its interests against attack by its neighbours, and Barak's warning was repeated by Ephraim Halevy, a former director of the country's Mossad intelligence services. "I think the breaking point is approaching," he said on Friday. "There comes a moment when we say we have exhausted our abilities to make proposals and that's it. And I think Iran understands this."

Between them, Barak and Halevy provide as good a means as any to understand the reactions of the Israeli military. For them it is an article of faith that any perceived threat has to be countered before it gets out of hand, and the present risk level is now reaching dangerous levels. Not only is Iran showing off its delivery systems but it is also believed to be close to producing the enriched uranium which would allow a nuclear weapon to be constructed.

Both developments produce a scenario fraught with danger for Israel, which is also believed to be a nuclear power. Iran now has a weapons system capable of hitting Israel and if these carried nuclear warheads no target within the country would be safe. Even if the present Shahab-3 system is elderly and unpredictable, the use of nuclear warheads still makes it a potent threat.

Against any such attack there would be very little in the way of reliable defences. There are question marks over the efficiency of the present US-supplied Patriot anti-missile system and it will be some time before the US missile shield comes into operation. At the end of a three-day visit to Europe, US secretary of state Condoleezza Rice claimed that Washington would "defend American interests and the interest of our allies", but that promise will be difficult to fulfil unless the new missile shield is made available to the Israel, Washington's closest ally in the Middle East.

That is the conundrum facing the Israelis, who understand that they are public enemy number one in the eyes of the Iranian president Mahmoud Ahmadinejad. As countering a missile attack would be extremely difficult, senior Israeli military commanders have been arguing in favour of a pre-emptive strike. In a very public demonstration of the capability of their air forces at the end of last month, more than 100 strike aircraft and airborne refuelling aircraft took part in a major exercise over the Mediterranean. The warning was obvious: Israel has done this sort of thing before in 1981 when a nuclear facility in Iraq was destroyed and the medicine was repeated last September when Israeli warplanes obliterated a similar facility under construction in the Syrian desert.

Any such operation would be fraught with difficulties. To hit the targets with any accuracy, Israeli planners would need good human intelligence - no easy matter in a closed society like Iran. The strike aircraft would require precision weapons, during the flight they would need a constant supply of fuel, and the attack itself would depend on a disciplined and well co-ordinated system of command and control. An aerial assault of this kind would need the involvement of the US forces in the region and the current view of Admiral Mike Mullen, the chairman of the joint chiefs of staff, is that at this stage an attack on Iran would be "extremely stressful". He could be the final arbiter on what happens next.

OPTION 2: DIPLOMACY
ANY attempt to prevent Iran constructing nuclear weapons depends on a system of sticks and carrots. President Mahmoud Ahmadinejad and, more importantly, the members of the country's Supreme Council have to be convinced that it is in Iran's interests to stop the development of enriched uranium. Iran's position is quite clear: officials have repeatedly stressed that as a member of the International Atomic Energy Agency (IAEA) and a signatory to the Nuclear Non-Proliferation Treaty (NPT), Iran is entitled to acquire and develop nuclear technology for civilian purposes, especially for energy.

However, Iran also needs western technology and that is where the US and its European allies believe that diplomatic pressure can be applied. A sign of what can be done came at the end of last week when the giant French energy group Total pulled out of a $10 billion deal to develop the South Pars fields in the Persian Gulf, which lie between Iran and Dhofar and contain the world's largest reserves of natural gas. This was a setback to Iran, as the field was expected to produce 751 million cubic metres of gas per day by the time it came on stream in 2014.

The decision represents a diplomatic triumph for the US president, George Bush, who has been leading a vigorous campaign to convince the world's leading powers to freeze their economic connections with Iran. Here he has been helped by a growing rapprochement with France's president, Nicholas Sarkozy, who insisted that Total should withdraw its commitment to the development of the South Pars fields.

Last month, Sarkozy also revealed his intentions when he told the Israeli government that France had no choice but to "reinforce Iran's isolation with new and UN sanctions". This chimes with Bush's own recently-voiced view that while he has not ruled out the use of force, he would prefer the crisis to be settled through diplomacy. Total's decision has pushed that policy forward, even though cynics point out that the French company has only withdrawn temporarily from the project and can involve itself again at a later stage.

It has also helped that Russia has suddenly become shy about helping the Iranians, not because they want to placate Washington but because they are concerned about creating a rival to their own position as a principal supplier of gas to western Europe.

To tighten the screw, the US Treasury and State Department have instituted targeted sanctions aimed at restricting the activities of individual Iranian officials thought to be involved in the development of enriched uranium. Foreign bank accounts and other financial assets have been frozen and US citizens will be prohibited from having any business relationship with the individuals. At the same time, the EU placed restrictions on Bank Melli, Iran's largest bank, which handles most of the country's trade with Europe and which is strongly suspected of being a conduit for state funding to terrorist groups.

To date, the UN has imposed three sets of sanctions on Iran aimed at preventing the export of technology which could assist the development of enriched uranium - but it has not just been waving the big stick. There is a new proposal on the table and Iran may yet accept it, provided it does not lead to a loss of face. Made jointly by the US, Russia, China, Britain, France and Germany, it offers recognition of Iran's right to develop nuclear technology for peaceful purposes on condition that there is no continuation of plans to produce enriched uranium. So far Ahmadinejad's only response has been to call the offer "illegitimate".

While this was to be expected, other voices in the regime have been heard offering the hope of concessions and the possibility of taking a different approach. The foreign minister, Manoushehr Mottaki, has recently broken ranks by speaking of a "new environment" and by claiming that "we hear new voices in America, we see new approaches and we think that the rational thinkers in America can, based on these new approaches, seek reality as it is".

Mottaki would not be drawn on whether or not he was referring to Barack Obama, the Democratic presidential candidate, who has expressed his willingness to enter into negotiations with Tehran. But if Mottaki had Obama in mind, Iran will probably tough it out until next year when it could find itself doing business with a new and perhaps more amenable US leader.