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Chief of Staff Lt Gen Benny Gantz made the statement in an interview with the Israeli newspaper, Haaretz.
He said Iran's Supreme Leader, Ayatollah Ali Khamenei, had not yet made the final decision whether to build a nuclear bomb.
Tehran says it wants nuclear technology for peaceful purposes but the West believes Iran is developing weapons.
In November the UN's International Atomic Energy Agency (IAEA) released a report with new evidence showing Iran was secretly working towards obtaining a nuclear weapon.
It did not say that Iran had succeeded in mastering the relevant technology or how long it might take to develop a bomb.
The US, European Union, Canada, Japan and Australia are among those who have imposed international sanctions on Tehran.
The measures include restrictions on Iranian oil sales, a ban on the supply of heavy weaponry and nuclear-related technology to the country, and an asset freeze on certain individuals and organisations.
At odds with PM?
Gen Gantz says this pressure is beginning to bear fruit.
He added that Iran "is going step by step to the place where it will be able to decide whether to manufacture a nuclear bomb. It hasn't yet decided to go the extra mile".
And speaking of the supreme leader he continued "I don't think he will want to go the extra mile. I think the Iranian leadership is composed of very rational people".
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Either Iran takes its nuclear programme to a civilian footing only or the world, perhaps we too, will have to do something”
Lt Gen Benny Gantz Israeli Chief of Staff
But these views appear to put him at odds with the Israeli Prime Minister Benjamin Netanyahu.
In an interview with CNN this week Mr Netanyahu said he would not want to bet "the security of the world on Iran's rational behaviour".
The prime minister has also warned he would be prepared to take action against Iran to stop it obtaining a nuclear weapon.
Gen Gantz warned this year will be critical for Iran, saying: "We're in a period when something must happen.
"Either Iran takes its nuclear programme to a civilian footing only or the world, perhaps we too, will have to do something. We're closer to the end of discussions than the middle."
Haaretz reported that the general believed Iran's nuclear programme was vulnerable because its facilities were not bomb-proof.
But although Gen Gantz does not think Iran would ultimately go ahead with a nuclear weapon, he said that as a military man he had to be prepared for every eventuality.
"I am preparing for full deployment of our capabilities. The political leadership will have to take courageous, painful decisions," he said.