Israel launched retaliatory strikes against Iran following the launch of missiles and drones from Tehran last week, according to two U.S. officials, although media in both countries appeared to downplay the severity of the incident.

According to Fars News Agency, explosions were heard in Isfahan, Iran’s third largest city, in the early hours of Friday morning. State television and the United Nations nuclear watchdog say the nuclear facilities there are safe.

Neither Iran nor the Israeli government confirmed that Israel carried out the attack. The Jewish state rarely comments on specific military operations related to Iran.

Flights were suspended from Isfahan, the Iranian cities of Tehran and Shiraz, and airports on the country’s western border, but those restrictions were soon eased.

The incident followed days of frantic diplomacy by the United States and European countries trying to persuade Israeli Prime Minister Benjamin Netanyahu not to respond too aggressively to Saturday night’s Iranian attack. Their main concern is to avoid a wider war in a region already rocked by the Israel-Hamas conflict, which could push oil prices above $100 a barrel.

Crude oil and gold initially rose in early trading on Friday, but later gave up gains amid reports that the apparent attack was far from widespread. A senior Iranian military official also said Tehran had responded to Israeli threats and was not blaming the Jewish state for the latest incident.

Isfahan has a population of approximately 2 million people and multiple military bases and facilities. It is believed to be one of several launch sites targeted by Iran in an attack on Israel on Saturday night.

The New York Times said two Israeli officials confirmed that their country was behind the attack. The newspaper also reported that a military air base near Isfahan was attacked.

Two U.S. officials told Bloomberg that Israel notified the United States on Thursday that it planned to retaliate within the next 24 to 48 hours. They requested anonymity to discuss private conversations. National Security Council and Pentagon spokespeople declined to comment.

Brent crude climbed above $90 a barrel as of 9 a.m. in London and was later trading around $87.80, up less than 1% on the day.

Gold also quickly reversed its gains. The yield on the 10-year U.S. Treasury note, another safe haven for global investors in times of geopolitical stress, fell about four basis points to 4.59%.

The shekel fell to its lowest level in 2024 this week but stabilized at $3.78 to the dollar on Friday. Although S&P Global Ratings downgraded Israel’s rating by one notch to A+ just hours before the reported attacks – it’s still comfortably in investment-grade territory.

Israel has vowed to retaliate against Iran for launching more than 300 drones and missiles, the vast majority of which were destroyed before hitting their targets. Although damage was limited and no one was killed, Israel said failure to respond would send a message of weakness to Iran and its other enemies.

Iran said it was a legitimate response to the April 1 attack on its embassy compound in Syria, which killed several Iranian officials and was blamed on Israel.

The United States, Europe and Arab countries urged Netanyahu to exercise restraint. The foreign ministers of Britain and Germany both traveled to Israel on Wednesday to meet with him.

Netanyahu faces a dilemma this week. While many members of his far-right coalition insist on a firm response, the Israeli public is divided over whether the country should respond. Many say it is not worth angering Iran and straining Israel’s relations with the United States, a poll showed.

Israel’s war in Gaza has been going on for more than six months, but it still plans to attack the city of Rafah, where thousands of Hamas fighters are said to be stationed. Many in the country want the government to focus on ending the conflict with the Iran-backed militant group that launched the deadly invasion on October 7.

The ball is in court in Iran

The nature and scope of Friday’s attack – including any casualties – if attributed to Israel, could determine whether the tit-for-tat response between the two sides escalates or begins to scale back.

“The ball is now in Iran’s court,” said Ziad Daoud, chief emerging markets economist at Bloomberg Economics. “The most likely scenario is to avoid escalation through another direct attack on Israel.”

Many analysts say targeting Iran’s nuclear facilities would be the riskiest, most aggressive option facing Israel, while attacks on non-nuclear military installations and cyberattacks would be less escalatory options.

Retired Israeli general Israel Ziv told Israel’s Channel 12 that early indications were that it was a “symbolic attack” that would not force Iran to respond aggressively.

Israel’s hawkish National Security Minister Itamar Ben Gvir said he was not satisfied with Israel’s apparent response.

“Weak,” he said in a post on X in Hebrew.

Ben Gvir is not a member of Netanyahu’s Likud party, nor is he part of the five-member war cabinet that makes final decisions on military operations. But he is key to the survival of Netanyahu’s coalition and said after the Iranian attack that Israel must hit back hard.

Iranian media painted a calm atmosphere in Isfahan and claimed that everything was proceeding normally. The country’s Supreme National Security Council decided not to hold an emergency meeting, state television reported.

Iran has been bracing for Israeli retaliation all week.

Tehran has frequently accused Israel of attacks and sabotage against its nuclear and military installations in the past, including in Isfahan, home to some key nuclear enrichment and missile facilities. Iran says its nuclear program is for peaceful purposes, but the West accuses it of seeking to develop atomic weapons.

Iran said on Thursday it might reconsider its nuclear policy if Israel attacks its nuclear facilities.

Iranian Foreign Minister Hossein Amirabdollahian also warned Israel against an onslaught following the weekend attacks.

“If the Israeli regime becomes adventurous again and takes actions that harm Iran’s interests, we will respond immediately and to the fullest extent,” he told CNN.