And Tehran will continue to provide rockets to armed groups, claims Israel.
Israel's Mossad spy agency estimates Iran will develop a nuclear weapon within three years and continue to provide rockets to regional armed groups, a newspaper reported on Tuesday.
Mossad director Meir Dagan, in an intelligence assessment presented to Israel's powerful foreign affairs and defence committee on Monday, said the Jewish state would face increased threats on all fronts, Maariv daily said.
Dagan's estimate of Iran's nuclear ambitions differs sharply from an assessment by the US intelligence community late last year that said Iran had mothballed its nuclear weapons programme in 2003.
That report compiled by 16 US intelligence agencies said the Islamic republic would not be able to attain a nuclear weapon until 2015.
Israel has questioned those findings, claiming that although Iran may have temporarily halted its nuclear drive five years ago it has since relaunched it while pressing ahead with a public uranium enrichment programme.
Tehran has always insisted its nuclear programme is for peaceful purposes.
In Monday's report, Dagan also predicted that Tehran would continue to supply more and better rockets and training to Palestinian militant groups in the Gaza Strip.
Dagan added that Iran's allies Syria and the Lebanese Shiite militia Hezbollah were also working to develop an increased rocket ability.
"Syria is improving its surface-to-surface missile system and today the quantity of missiles and rockets is twice as large as two years ago," Dagan said, according to Maariv.
Israel has long perceived Iran as its greatest threat, especially after Iran's President Mahmud Ahmadinejad relaunched its nuclear enrichment programme and repeatedly predicted the demise of the Jewish state.