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I don't believe that Iran is bluffing either. Unfortunately for the Iranian people, their government just cannot fathom the consequences of any military action unleashed upon Israel by their military.
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Thats not true. The Iranian government isn't that stupid. They have military planners, and they know they are that the disadvantage. Its certainly possible that hatred is overriding their judgment, but the more likely cause is political pressure. Iran needs to save face by standing up to and threatening Israel. Most likely, the leadership wants to avoid destroying their own country, but need a politically feasible way to do so.
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If it ever came to a nuclear exchange, I would most certainly rather see a million Iranians incinerated than Israelis.
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The whole point is Israel actions is that there isn't going to be a nuclear exchange.