Israel Prime Minister Benjamin Netanyahu says Israel could act against Iran itself, not just its allies in the Middle East, after border incidents in Syria brought the Middle East foes closer to direct confrontation.
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Iran mocked Mr Netanyahu's tough words on Sunday, saying Israel's reputation for "invincibility" had crumbled after one of its jets was shot down following a bombing run in Syria.
In his first address to the annual Munich Security Conference, which draws security and defence officials and diplomats from across Europe and the US, Mr Netanyahu held up a piece of what he said was an Iranian drone that flew into Israeli airspace this month.
"Israel will not allow the regime to put a noose of terror around our neck," he said: "We will act if necessary not just against Iran's proxies but against Iran itself."
Mr Netanyahu issued a clear warning to Iran.
"We will act without hesitation to defend ourselves, and we will act not just against Iran's proxies that are attacking us, but against Iran itself," he said.
He urged Iran's Foreign Minister Mohammad Javad Zarif to take a "message to the tyrants of Tehran: do not test Israel's resolve."
For his part, Mr Zarif called Mr Netanyahu's presentation "a cartoonish circus, which does not even deserve a response".
"What has happened in the past several days is the so-called invincibility (of Israel) has crumbled," Mr Zarif, who addressed the conference hours after Mr Netanyahu, said, referring to the downing of the Israeli F-16, which crashed in northern Israel after a strike on Syrian air defences.
Mr Zarif accused Israel of using "aggression as a policy against its neighbours" by regularly carrying out incursions into Syria and Lebanon.
Israel has accused Tehran of seeking a permanent military foothold in Syria.
The tough words on both sides at the international event come as Israel is increasingly seeking to co-operate with Sunni Arab states that share its worries about Shi'ite Iran. For months, Mr Netanyahu has touted what he describes as unprecedented levels of behind-the-scenes co-operation.
"The fact that we have this newfound relationship with the Arab countries - something that ... I would not have imagined in my lifetime - this is not what they call a spin," Netanyahu said, during a question and answer session after his speech.
"This is real, it's deep, it's broad: it doesn't necessarily cross the threshold of a formal peace, and I doubt that would happen until we get some formal progress with the Palestinians - so the two are linked," he added.