Israel beefs up defences, on alert after Iran revenge threat

JERUSALEM, April 4 (Reuters) - Israel braced on Thursday for the possibility of a retaliatory attack after its suspected killing of Iranian generals in Damascus this week, saying it would respond forcefully and signalling it had stiffened its military preparedness.

Israel's armed forces - stretched by nearly six months of war in the Gaza Strip and on the Lebanese front - announced they were suspending leave for all combat units, a day after they said they were mobilising more troops for air defence units.

The possibility of Iran retaliating for Monday's presumed Israeli air strike on Iran's embassy compound in Damascus has raised the spectre of a wider war, though two Iranian sources said Tehran’s response would be calibrated to avoid escalation.

"The State of Israel is prepared for every scenario. We will respond with force to any attempts to attack us," government spokesperson Raquela Karamson said in a briefing.

Reuters journalists and residents of Israel's commercial hub Tel Aviv said GPS services had been disrupted, an apparent measure to help ward off guided missiles.

Iran, Israel's arch-enemy, has sworn revenge for the killing of two of its generals along with five military advisers in an air strike on an Iranian diplomatic compound in the Syrian capital on Monday.

Israel is believed to have carried out the strike, among the most significant yet on Iranian interests in Tehran's close ally Syria. Israel has neither confirmed nor denied involvement.

Since then, investors have been on edge. The Tel Aviv Stock Exchange's main TA-125 share index (.TA125)

, opens new tab fell another 2.2% on Thursday to extend losses this week to around 4%. The Israeli shekel was 0.6% weaker versus the dollar at a 3.73 rate and government bond prices were down as much as 0.4%.

"In accordance with the situational assessment, it has been decided that leave will be temporarily paused for all IDF (Israel Defence Forces) combat units," the military said in a statement. "The IDF is at war and the deployment of forces is under continuous assessment according to requirements."