Israel's accelerating drive to build up its German-built submarine fleet, already the most powerful in the Middle East, is going to cost $1.8 billion for three state-of-the-art Dolphin class boats being built by Howaldtswerke-Deutsche Werft.

Germany, doing penance for the Nazi-era Holocaust, has agreed to pay one-third of that. And, in one of the sweetest of military contracts ever drawn up, Berlin has also committed to place orders worth $514.7 million with Israeli defense companies and other suppliers, the liberal Haaretz newspaper reports.

The newspaper quoted defense sources as saying that part of the offset purchases that Berlin will make will be used in building three advanced Dolphins and the rest will be in the form of defense and other procurements from Israeli industry.

The Israeli navy took delivery of earlier model Dolphins in 1998-2000 from HDW, a subsidiary of the giant ThyssenKrupp conglomerate.

An Israeli crew took over the fourth Dolphin May 3 when it was launched at Kiel, Germany. While it is being fitted out and begins sea trials, the crew will train in Israel.

"More than anything else, this ceremony represents the strong and unique link between Germany and Israel, especially in the intensifying regional situation and challenges," said Israeli Defense Ministry Director General Udi Shani at the handing-over ceremony.

The importance of Israel's expanding submarine fleet was underlined by the welter of publicity accorded the navy's newest acquisition and the two other Dolphins the Israelis have ordered, three weeks before Iranian leaders were due to meet Western adversaries in Baghdad to discuss Tehran's contentious nuclear program.

The May 23 meeting, which could produce a diplomatic solution to the growing Iranian-U.S. confrontation in the Persian Gulf, will take place amid Israeli threats to launch pre-emptive strikes against Iran's nuclear facilities.

Therein lies the strategic implications of Israel's growing submarine force and the extensive mid-life upgrades being carried out on the three Dolphins in Israeli service.

"Almost any future war the Israeli military may face, be it in Lebanon, Syria, a radicalized Egypt, and of course Iran, can be fought from the sea," observed Haaretz analyst Anshel Pfeffer.

"The full complement of three new submarines will not be entirely operational until 2016 at the earliest.

"But since Israeli military planners are already talking about 'the next strike on Iran,' the one that may be carried out four or five years down the line (after the Iranians rebuild their nuclear program following an Israeli or U.S. attack), the advanced underwater capability is very relevant," Pfeffer wrote.

The Dolphins, along with the $2.75 billion order for 20 Lockheed Martin F-35 stealth jets, which would have the task of carrying out airstrikes against Iran, are Israel's most ambitious military programs.

However, the F-35 is plagued with development problems and cost overruns, which mean it may not be operational with the Israelis until 2018.

"This means," Pfeffer observed, "that if Iran significantly improves its air defenses, as can be expected, the next war, or the one after it, could well be launched from underwater."

The fourth Dolphin is scheduled to be operational by 2014. The fifth is expected to be delivered in 2014 and the sixth, which will be the most advanced, by 2016.

Israel's entire six-sub fleet should be operational by 2017.

The new 1,925-ton Dolphin is one of the most advanced in the world, a development of Germany's Type 209 which was the basis for the Dolphin class boats.

Western sources say the so-called super-Dolphin includes a new propulsion system that makes it virtually impossible to detect by sonar, as well as a special diesel and hydrogen conversion system that allows it to produce its own fuel, thereby greatly extending its range and endurance.

These sources say the super-Dolphins -- another is under construction and a sixth on order -- are equipped to carry Israeli-built cruise missiles with a range of some 940 miles and capable of carrying nuclear warheads.

The early model Dolphins reputedly were fitted to launch nuclear missiles through their forward 256mm torpedo tubes, although the Israelis have never confirmed that. However, it is widely accepted in military circles that for the last decade or so Israel has had the capability of launching nuclear missiles from its submarines.