A senior German official has confirmed that Berlin held up the sale of a sixth Dolphin-class submarine until Prime Minister Binyamin Netanyahu's right-wing government released $100 million in tax revenue withheld from the Palestinian Authority.

The German move several weeks ago, apparently on behalf of the European Union, was believed to be the first time that Berlin has used such tactics against the Jewish state involving arms sales.

Israel already has three Dolphins operational. These are reportedly capable of launching nuclear-armed cruise missiles, with Iran considered to be the most likely target amid growing tension over the Islamic Republic's contentious nuclear program.

The Dolphins are heavily modified versions of the Type-209 submarines built by the Howaldtswerke-Deutsche Werft AG shipyard of Kiel, a subsidiary of ThyssenKrupp.

The three in Israeli service were delivered in 1997-99. The navy ordered two advanced models of the diesel-electric submarines in 2005 and these are scheduled for delivery in 2012-13.

The sixth boat, incorporating systems developed by Israeli defense contractors such as Tadiran, Elbit, Israel Aerospace Industries and Rada, was ordered in 2010.

The German newsmagazine Der Spiegel reported Oct. 30 that German Chancellor Angela Merkel was reconsidering the deal for the sixth Dolphin because of the Israeli government's approval of the construction of more Jewish settlements in Arab East Jerusalem.

That was widely seen as an expression of the European Union's dismay at the continued refusal of Netanyahu's coalition to make concessions to the Palestinians, particularly on relinquishing the West Bank, to promote a peace agreement.

On Sunday, the German newspaper Welt am Sonntag reported that Merkel had, in fact, threatened to scupper the deal for the sixth Dolphin if the Israelis didn't resume the transfer of funds to the Palestinian Authority.

These were blocked when the Palestinians sought U.N. recognition of an independent state.

As soon as Netanyahu bowed to the pressure from Berlin and unfroze the PA funds, the German government announced it would proceed with the Dolphin project. A German official in Berlin disclosed Nov. 30 the Dolphin deal would go ahead with the government setting aside $176 million in the 2012 budget toward the submarine, which will cost $423.3 million-$678 million.

"The Dolphin was the icing on the cake Israel received for agreeing to the European request," Welt am Sonntag quoted the official as saying.

The Dolphins are Israel's most expensive and advanced weapons platforms and its most strategic because of their reported nuclear capability. This gives the Jewish state, militarily the most powerful in the Middle East, the option of a pre-emptive first-strike attack by land, sea or air -- or all three together.

However, it's considered that the 1,925-ton submarines bolster Israel's deterrent capabilities and would more likely be used for a second retaliatory nuclear strike against Iran. At least one of the three Dolphins in service with the Israelis is believed to be deployed in the Arabian Sea or the Red Sea at all times to cover Iran.

The new boats are more advanced variants of those the Israelis now have and will incorporate modifications specified by the Israeli navy, although these haven't been disclosed.

These boats have a reported range of 2,800 miles, which greatly enhances Israel's strategic capabilities.

The newer Dolphins will incorporate an Air Independent Propulsion, similar to the system used on German Type-212 submarines. This allows them to spend much more time submerged, with a near-silent cruising signature that makes them more difficult to detect.

Their integrated fire control system allows the Dolphins to track and engage a large number of targets.

The existing Dolphin force is stationed at the big naval base at Haifa on Israel's Mediterranean coast.

The Jerusalem Post reported Monday the Israeli navy has completed the first mid-life upgrade on one of the original three Dolphins delivered in the 1990s. The Dolphins had an expected lifespan of 30 years.

The upgrade, the first undertaken by Israel, was conducted in secret at Haifa "so Israel's enemies wouldn't know one of its three submarines was out of commission," the Post observed.