If you want to argue for optimism, try the following:
Iranian nukes will create an Israeli-Iranian alignment of political interests. Iran is more hated by the Arab states than is often let on. Iranian nukes increase the chance that Arab terrorism will be directed against Teheran rather than Tel Aviv or Manhattan.
Iran with nukes will carve out a greater sphere of influence, in part at the expense of Israel and America. But it will seek to stabilize that sphere, and "Israel" and "stability" likely will be seen as complements. Iran won’t want Iraq under the control of al Qaeda. Israel and Iran would work together, albeit covertly, to limit further proliferation in the region.
Some of the Arab nations would find themselves forced into a de facto alliance with israel, if only to resist Iranian power. This is not obviously a bad outcome.
Most politicians — whether religious fanatics or not — are pragmatic. The status of a nuke could be a substitute for the status earned by Iran from supporting terrorism and bashing Israel. More importantly, nuclear powers do not generally want to transfer much power to decentralized, hard-to-deter terrorists.
Iran tends to be ruled by councils rather than lone maniacs, a’la North Korea, a far more worrying example. Groups are conservative by their nature. I am aware that the Iranian president sometimes sounds like Hitler, but the talk could be geared to appeal to the Iranian public.
Yes I do fear nuclear proliferation — greatly in fact — but Iran getting nukes is neither a) a fact which causes me to up my priors on how bad proliferation will be (which is very bad), nor b) an undeterrable nukeholder. They are a big fat sitting duck, and their history is to seek regional power against Arabs and into central Asia.
Let me sum up the underlying theoretical reasons for relative optimism: 1) the quest for status is often quite local in nature, 2) Arabs and Iranians often distrust each other, 3) it is not all about us; often the U.S., or Israel for that matter, is a symbolic token in local struggles rather than the real target, 4) politicians tend to be pragmatic, and 5) international political coalitions are often more fluid than the rhetoric of politicians would suggest.
Here is Thomas Schelling on Iranian nukes.
But if you wanted to argue it the other way, I would suggest the following:
1. Iran will face another civil war and the losers might lob a nuke at Israel as a kind of going-away present.
2. Israel feels secure with its current nuclear deterrent only because it knows that no hostile country has a counter deterrent against Tel Aviv. If Israel felt less free to use its nuclear weapons, it would feel less secure. It would be subject to repeated regional military taunts, which would eventually lead to war, nuclear or otherwise. The new book The Bomb in the Basement: How Israel Went Nuclear and What It Means for the World — highly recommended by the way — is excellent on this issue.
3. Western crazies will someday sneak a small nuke into Teheran, leading to Iranian retaliation.
4. Iranian early warning systems may be unreliable, or subject to manipulation, and erroneously report an Israeli first strike.