This is another common idea that annoys me. On a thread discussing possible a possible israeli attack against iran, one poster wrote "this would mean world war 3." Let's be clear: NO IT WON'T !
World war 1 and 2 were "world wars" because of international treaties which required nations to go to war if another nation were attacked. Neither israel nor iran have such a treaty with any other nation. Even if they did have treaties with neighboring countries, any conflict between israel and her neighbors will be a purely regional war.
Short of an attack on a nato state by russia or china, there is no real chance of another world war in the forseeable future. The un sponsored first gulf war was, technically, a world war -- because a multi-national force was involved. But the fighting itself was localized in kuwait, iran and israel.
Likewise the war on terror could also be described as a global war -- there have been attacks on every continent except antarctica. But, so far, the war has not seen the massive global mobilization that defined world war 1 and 2.
To reiterate, israel and iran could literally destroy each other, and it would not escalate beyond the middle east.