Downing Street has declined to comment on a report that suggested ministers discussed what role Britain should play in the event of a military confrontation between Israel and Iran.
According to the BBC, the National Security Council discussed last week the issue of what Britain should do if Israel launched a military strike on Iranian nuclear facilities, and if amid British involvement would be legal.
Conflict between Israel and Iran could potentially trigger a wider clashes in the Middle East. Ministers were reportedly discussing their fears that such an attack would lead to Iran blocking the Straits of Hormuz, causing massive disruption to world oil supplies.
The question of the legality of British interventions, ranging from diplomatic support for Israel to the deployment of Royal Navy ships in the region is currently being examined by the government's law officers, reports the BBC.
The report came as negotiators from the E3+3 group - Britain, the US, France, Germany, China and Russia - met Iranian diplomats in Baghdad to discuss international concerns about Tehran's nuclear programme.
Britain and other international powers suspect the programme is intended to produce an atomic weapon. Tehran denies the charge, insisting it wants only to develop a civilian nuclear power capability.
Prime Minister David Cameron's official spokesman said Britain welcomed Iran's renewed willingness to talk and would "vigorously" pursue the latest round of discussions.
But he declined to say what preparations were being made in Whitehall for the possibility that the talks might fail, leading to an Israeli military response.
"The government has contingency plans for a whole range of things, but we don't comment on them and I don't think it is helpful to speculate on these things," said the spokesman.
"Iran is an issue that is discussed both by the National Security Council and Cabinet on a reasonably regular basis."
He added: "We have had concerns for some time about their nuclear programme. We have had a consistent approach to dealing with that, which is a twin-track process of pressure and engagement.
"We are committed to trying to find a diplomatic solution and we fully support the E3+3 talks which are taking place in Baghdad today.
"What has changed recently is that they have agreed to have these talks. That is clearly a welcome development and we will pursue them vigorously."
Today's meeting follows on from talks in Istanbul last month at which the E3+3 team detected signs of willingness on the Iranian side to engage constructively after a long stalemate.
Britain believes that the EU embargo on Iranian oil, agreed in January and due to come into effect in July, is having a significant effect in concentrating minds in Tehran.
Negotiators are expected to set out details in Baghdad of what Iran must do to ratchet down pressure and benefit from the co-operation of the international community on its civilian nuclear energy aspirations.
It is thought unlikely that the withdrawal of the oil embargo will be on the table unless there are signs of dramatic concessions from Tehran.
Shadow foreign secretary Douglas Alexander accused the Government of "sabre-rattling" rather than concentrating on the diplomatic route.
Mr Alexander said: "Instead of sabre rattling in public about what could happen if the diplomatic efforts fail, the Government should be focused on ensuring a successful outcome to the talks now under way.
"Now is the time both to be engaging directly with Iran and increasing the diplomatic pressure upon Iran to meet its obligations under the NPT (Nuclear Non-Proliferation Treaty)."