Muhammad al-Baradai, the head of the International Atomic Energy Agency, told an Israeli newspaper on Friday that Israel and its neighbours should eliminate all weapons of mass destruction from the region.
Israel has never officially admitted to having the bomb, and positions itself outside international treaties which would make it subject to inspection.
But al-Baradai told the Haaretz daily: "We operate under the assumption that Israel has nuclear arms... Israel has never denied this."
He added there is "a lot of frustration" about Israel's suspected cache, and urged the country to sign the Non-Proliferation Treaty - a global pact aimed at stopping the spread of nuclear arms.
The UN General Assembly and IAEA General Conference have adopted 13 resolutions since 1987 appealing to Israel to join the treaty, but all have been ignored.
"My fear is that without such a dialogue, there will be continued incentive for the region's countries to develop weapons of mass destruction to match the Israeli arsenal," he said.
Vanunu was held in solitary
confinement for 11 years
Israel's nuclear programme was exposed in 1986 by Israeli nuclear scientist Mordechai Vanunu.
After a British newspaper published the revelations, Mossad agents kidnapped Vanunu in Italy and illegally smuggled him back to Israel.
He has now spent 17 years in jail, 11 of which were in a tiny solitary confinement cell - and he has just had his appeal for parole denied.
Middle East Armageddon
Vanunu will stay in jail until 2004, when his term is expected to end.
Neil Kingsnorth, a spokesman for the London-based Campaign for Nuclear Disarmament, said Israel is estimated to have between 100 and 200 nuclear warheads.
If deployed, they would be sufficient to obliterate the whole region.
"Israel doesn't admit or deny having nuclear weapons, probably for legal reasons. They don't even try to justify having them but it is obviously because they are surrounded by what they perceive as hostile Arab states," he said.
"But having nuclear weapons hasn't prevented Israel being attacked by the Palestinians. I think in the short term the principle of nuclear deterrance might work but in the long term tensions inevitably rise."
"Israel should own up to having nuclear weapons and sign the Non-Proliferation Treaty. If countries like Israel set an example, non-nuclear states would lose the incentive to acquire these weapons"
Campaign for Nuclear Disarmamnet
However, Kingsnorth said the whole nuclear debate, which is focussing at the moment on Iran's nuclear programme, is replete with hypocrisy.
"The US and Great Britian have thousands of nuclear warheads between them but are refusing to give them up. They are trying to make this false distinction between good states that can have nuclear weapons and bad ones who can't.
"In practice, the good ones are the ones that are willing to work with them and the bad ones are the ones who are not. I think that is an incredible oversimplification of a complex international situation."
He added: "Israel should own up to having nuclear weapons and sign the Non-Proliferation Treaty. If countries like Israel set an example, non-nuclear states would lose the incentive to acquire these weapons. Then we could make strides to nuclear free world."