That is a totally  ridiculous notion.  They don't need nuclear capability to incinerate the Gaza strip or any other Palestinian held areas.  A simple fly-past with the airforce, and a few well placed rockets will do, and they could do that in about 1 hour,...Israel has always had the capability for such action,...but they didn't do it.  They didn't wipe out every man, woman and child, and they won't.  However, if the shoe were on the other foot, and the Arabs had the air power, Israel would have been reduced to cinders at the first opportunity.  

 The warheads make much more sense as a deterrent against Iran, and that is a very real threat.   In that situation, I don't see them launching a first strike either, not on their own anyway.  The Americans will have to force their hand for that to happen, and I pray it doesn't.