Citing multiple unidentified Israeli military sources, The Sunday Times said the proposals involved using so-called "bunker-buster" nuclear weapons to attack nuclear facilities at three sites south of the Iranian capital.
Israeli Prime Minister Ehud Olmert's office said it would not respond to the claim. "We don't respond to publications in the Sunday Times," said Miri Eisin, Olmert's spokeswoman.
Israeli Minister of Strategic Threats Avigdor Lieberman also declined to comment on the report.
But Foreign Ministry spokesman Mark Regev denied the report and said, "The focus of the Israeli activity today is to give full support to diplomatic actions and the expeditious and full implementation of Security Council resolution 1737. If diplomacy succeeds, the problem can be solved peaceably."
The United States and its allies accuse Tehran of secretly trying to produce atomic weapons, but Iran claims its nuclear program is solely for peaceful purposes, including generating electricity.
Iranian President Mahmoud Ahmadinejad has condemned as invalid and illegal a United Nations Security Council resolution that imposes sanctions against the Islamic Republic for refusing to halt enrichment.
Though Olmert has not explicitly ruled out a military strike against Iran's nuclear program, he has repeatedly said the issue should be dealt with diplomatically.
Olmert has said that because an Iranian nuclear bomb would affect the entire world, not just Israel, the problem must be solved by the international community.
The Sunday Times reported that the Israeli military officials believed Iran could produce enough enriched uranium to build nuclear weapons within two years.
It reported that Israeli pilots had made flights to the British colony of Gibraltar to train for the 2,000-mile round trip to the Iranian targets.
Asked by The Associated Press on Sunday whether the Israeli air force was training for an attack against Iranian nuclear facility, the Israeli army declined comment.
"I refuse to believe that anyone here would consider using nuclear weapons against Iran," Reuven Pedatzur, a prominent defense analyst and columnist for the daily Haaretz, told the AP in Israel on Sunday. "It is possible that this was a leak done on purpose, as deterrence, to say: 'Someone better hold us back, before we do something crazy.'"
Ephraim Kam, a strategic expert at Tel Aviv University's Institute for National Strategic Studies and formerly a senior army intelligence officer also dismissed the report.
"No reliable source would ever speak about this, certainly not to the Sunday Times," Kam said.