"Iran completed all of the steps that would allow it to make a nuclear bomb when it decides to ... ," the Hebrew language daily Maariv quoted Yadlin as saying.
Yadlin is director of the Institute for National Security Studies and former head of the army's intelligence unit.
He made the comment while giving the institute's strategic assessment for 2013.
If Israel conducts a surgical strike on Iranian nuclear sites, the Islamic republic will respond in a restricted manner in order to prevent a regional war, Yadlin said.
"It is possible that in 2013 they [Iran] will decide to operate and that will necessitate an Israeli operation and possibly also the United States, and we must decide what our red line will be. If Iran is attacked, there will be a Middle East war but we believe the Middle East won't want a regional war and Iran's response will be a limited one," he said.
Yadlin stressed that Iran's nuclear program has yet to reach the point of no return and said Israel must give diplomacy a chance.
"They don't have enough centrifuges. When they have over 10,000 centrifuges, it will justify an Israeli and American action," he said.