Israel finance minister says Iran economy "on verge of collapse"
* Recognition grows in Israel that sanctions having effect
* Netanyahu has said sanctions not forcing policy change
* Iran's oil income said to be down by over $40 billion
* Inflation reported to be hurting Iranians
JERUSALEM, Sept 30 (Reuters) - Iran's economy is edging towards collapse due to international sanctions over its controversial nuclear programme, Israeli Finance Minister Yuval Steinitz said on Sunday.
Israel regards the prospect of its arch enemy developing nuclear weapons as a threat to its existence, and Prime Minister Benjamin Netanyahu has said that, although sanctions are taking their toll, they are not yet forcing Iran to abandon work that could soon lead to a nuclear warhead.
However, Israeli officials appear increasingly ready to acknowledge the effect of recent American and European sanctions designed to restrict Iran's lifeline oil exports.
"The sanctions on Iran in the past year jumped a level," Steinitz told Israel Radio, noting that as finance minister, he follows Iran's economy.
"It is not collapsing, but it is on the verge of collapse. The loss of income from oil there is approaching $45-50 billion by the year's end," Steinitz said.
The United States, Israel's main ally, says it will not allow Tehran to produce the bomb, but sanctions should be given more time to work before force is considered.
American and Israeli commentators say a military strike to destroy Iran's nuclear plants, which Iran says are designed only to develop a nuclear generating capacity, could trigger a regional war with unforeseeable consequences.
In Israel too, some prominent political and military figures question Netanyahu's warning that Iran is so close to the threshold of nuclear capability that military action will soon be the only way to stop it.
But there has been no open split in his coalition over the issue. Steinitz praised the prime minister's speech to the U.N. General Assembly last week in which he used graphics to underscore the perceived Iranian threat.
An Israeli Foreign Ministry document leaked last week said sanctions had caused more damage to Iran's economy than at first thought and ordinary Iranians were suffering under soaring inflation, although this did not appear to be changing policy.
On Saturday, the Iranian currency slumped to an historic low of about 28,400 rials to the dollar, a fall of about 57 percent since June 2011, meaning a sharp rise in the price of imports.
"The Iranians are in great economic difficulties as a result of the sanctions," Steinitz said.
Parliamentary opponents of Iranian President Mahmoud Ahmadinejad say sanctions are not a major cause of Iran's economic problems and accuse his government of mismanaging the economy.
"The first approach today is that authorities accept their mistakes and failures, second, that they not blame their mistakes on others, and third, that they invite all the pundits and experts to find a way to solve the problems of the economy," Iranian legislator Ezzatollah Yousefian was quoted as saying by the Mehr news agency.
Israeli Foreign Minister Avigdor Lieberman told Saturday's Haaretz daily that he believed Iran's Islamic theocracy would be toppled in a revolt like the one that toppled Egyptian president Hosni Mubarak last year.
"The opposition demonstrations that took place in Iran in June 2009 will come back in even greater force," he told the paper. "In my view, there's going to be an Iranian-style Tahrir revolution. The young generation are sick of being held hostage and sacrificing their future."
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