EILAT, Israel (AFP) - The Israeli army was on Sunday unloading a ship which it intercepted in the Red Sea allegedly transporting arm from Iran to Gaza and escorted to the port of Eilat.

An AFP correspondent said dozens of containers from the Panamanian-flagged Klos-C were being unloaded and transferred on trucks to a nearby navy base.

Naval commandos seized the vessel on Wednesday in the Red Sea between Eritrea and Sudan, and it was escorted into Eilat on Saturday by two Israeli warships.

The military said it was carrying an Iranian shipment of M-302 rockets destined for the Hamas-run Gaza Strip.

The army chief, Lieutenant General Benny Gantz, said: "Each one of these rockets poses a threat to the safety of the citizens of Israel - each bullet and each rocket that was discovered had an Israeli address." The military is to hold a news conference late Monday to display the seized weaponry.

Iran has flatly denied any involvement with the shipment, which the Israeli army said was carrying missiles capable of striking anywhere in the Jewish state.

Prime Minister Benjamin Netanyahu has been pressing the international community to maintain crippling economic sanctions on Iran over its nuclear drive.

World powers have eased the sanctions on Iran as part of a landmark interim deal struck in November, under which Iran undertook to curb its nuclear activities for six months.

The United States, other Western powers and Israel have long suspected Iran of using its nuclear energy programme as a cover for developing atomic weapons, a charge denied by Tehran.