I think sanctions may be "doomed" but I also think they MUST succeed because the alternatives will be messy. I'm mostly writing this because I don't think a good understanding of Israel's motives and POV considerations were expressed in your post and I think that of all the issues in your post that this is the most critical to understanding the status of this situation.
Ahmadinejad has expressed himself in ways that suggest a mind capable of using nukes on Israel without regard for MAD. How would Israel and other states retaliate? Nuke all of Iran? No. And so the act of destroying choice parts of Israel & her population via nuclear weapons is likely to be seen as beneficial for many of the extreme Aarab nations. Will Ahmadinejad do it? No one has the ability to judge his intentions but I'd be more than concerned if I were Israel. I think preemptively striking their refinement facilities would be prudent if Iran is not being completely transparent if their refinement. It would cause comparably minor casualties but would unfortunately necessitate the declaration of a new war. However, it is more favorable for Israel to be at war than to find out they are at war after Iran's first nuclear detonation.
Mostly, I think Israel's cease and desist declaration is designed to both deter Iran and to incentivize the UN into other solutions that halt Iran's nuclear enrichment. Israel will be very hesitant to attack Iran without a majority of UN support and will only follow through with an attack if they feel it is absolutely necessary. Remember though that they see it as a strictly defensive move and that they gain nothing from provoking yet another Arab nation. The likelihood of a war with Iran, including heavy missile retaliation, ground fighting, and increased "terrorist" actions, is not unknown to Israel. They know they'll have to pay for any bombing they do and will only pursue a bombing if they feel even more threatened by the possibility of nuclear weapons in the possession of a hateful enemy. They know what a preemptive attack would mean for their region better than we do. However, like us, they would prefer a bloody war over their potential inhalation or over the possibility of a devastating nuclear war. Even the US went to war when they thought one of their so-so enemies had WMD (not a good decision). Now considering Iran's expressed intentions towards Israel and their proximity to one another, I think the threat posed by the Iranian nuclear program justifies a targeted attack by Israel if sanctions fail and Israel still thinks that the program is likely to eventually yield nuclear weapons.