Chief of Staff Lt Gen Benny Gantz made the statement in an
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 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?Israel's position on Iran's nuclear programme is normally set out by Benjamin Netanyahu and Defence Minister Ehud Barak. Over the past six months both men have repeatedly spoken of the threat posed by Iran in immediate and occasionally apocalyptic terms.
Israel's serving military commanders don't speak in public as often as their political leaders. But the generals' occasional public comments consistently paint a more complex picture of Israel's views on Iran.
In his interview with Haaretz, Benny Gantz takes care to repeat a point made on previous occasions this year by a number of Israeli and US intelligence officials: Iran has not yet made the decision to make actual nuclear weapons.
The IDF Chief of Staff even goes one step further with the assessment that he does not think that Iran's Supreme Leader Ayatollah Khamenei will take this final step.
Lt Gen Gantz also makes an important characterisation with his belief that the Iranian leadership is composed of rational people. This contrasts with comments made by senior Israeli politicians - Vice Premier Silvan Shalom recently described Iran's leaders as "lunatics."
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."
But these views appear to put him at odds with 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: "Clearly, the more the Iranians progress the worse the situation is. This is a critical year but not necessarily 'go, no-go'. 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.
He also expressed concern that "we are the only country in the world that someone calls for its destruction and also builds devices with which to bomb us".
"But despair not," he said. "The State of Israel is the strongest in the region and will remain so. Decisions must be made carefully out of historic responsibility but without hysteria."
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.
