* Move looks like latest reply to threats of Israeli attack
* Weapons experts believe Iran exaggerates capabilities
By Yeganeh Torbati
DUBAI, Aug 21 (Reuters) - Iran unveiled on Tuesday what it said was an upgraded short-range missile and said it would build a new air defence site, in what appeared to be an attempt to show its readiness against any Israeli attack.
President Mahmoud Ahmadinejad and Defence Minister Ahmad Vahidi attended a ceremony at which officials unveiled the fourth-generation Fateh 110 short-range missile, with a range of about 300 km (180 miles), and other upgraded hardware.
Ahmadinejad said Iran's military upgrades were purely for defensive purposes and should not be taken as a threat, but said they would dissuade world powers from imposing their will on Iran.
"Defensive advances are meant to defend human integrity, and are not meant to be offensive moves toward others," Ahmadinejad said, according to Mehr news agency.
"I have no doubt that our defensive capabilities can stand up to bullying and put a halt to their plans."
Separately, Iran announced the start of construction on an air defence site, to be built in the south of the country about 210 km (130 miles) from its uranium enrichment facility in Isfahan, officials said.
The 200-hectare air defence installation in the Abadeh area would be the largest in that part of the country and will be built by Khatam al-Anbia, the engineering arm of Iran's Islamic Revolutionary Guard Corps, and will eventually employ 6,000 people, Fars reported.
"If (the enemy) ever has the intent of attacking this soil, we will make the Persian Gulf their grave," Abadeh's governor, Mohammad Javad Askari, was quoted as saying at a ceremony marking the start of construction at the site.
Israel, believed to be the only atomic power in the Middle East, views Iran's nuclear programme as an existential threat, citing Iranian threats to destroy the Jewish state.
There has been an upsurge in rhetoric from Israeli politicians this month suggesting Israel might attack Iran's nuclear facilities ahead of the U.S. presidential election in November.
Iran, which denies trying to develop a nuclear bomb, says it could hit Israel and U.S. bases in the region if it comes under attack.
It has also threatened to block the Strait of Hormuz, the neck of the Gulf through which 40 percent of the world's sea-borne oil exports pass. Such a move would probably invite a military response from the United States.
Paul Beaver, a London-based defence analyst, said Tuesday's moves appear to be geared at showing the world Iran is prepared for an attack on its nuclear facilities, and said Iran had been able to upgrade air defence systems dating from before the 1979 Islamic revolution with Russian and perhaps Chinese equipment.
"We have seen 20 years of development of the Iranian air defence system," Beaver told Reuters. "I believe that Iran is a very hard nut to crack."
Iran is also locked in a years-long dispute with Russia over the high-precision S-300 air defence system, which Moscow has refused to deliver to Tehran in order to comply with expanded U.N. sanctions passed in 2010.
Iran said earlier this month that it had successfully test-fired the new Fateh-110 model and that it was equipped with a more accurate guidance system.
"This missile is one of the most precise and advanced land-to-land ballistic missiles using solid fuel," Vahidi was quoted as saying by Fars.
In July, Iran said it had successfully test-fired medium-range missiles capable of hitting Israel, and tested dozens of missiles aimed at simulated air bases.
It also presented a more powerful, 5,000-horsepower sea-borne engine, the Bonyan-4, Fars quoted Vahidi as saying. A previous version had 1,000 horsepower, the Iranian Students' News Agency (ISNA) said.
Military experts have cast doubt on Iran's claims of weapons advances, especially its assertions about its missile programme, saying Tehran often exaggerates its capabilities.
"The Fateh-110 has a crude guidance and control system that operates during the missile's ascent" rather than during final descent, said Michael Elleman, senior fellow for missile defence at the International Institute for Strategic Studies.
"The Fateh-110 appears to lack the subsystems needed to effect terminal steering," he said in an email.
Iran on Tuesday also presented Armita, an "airborne laboratory" to help test aircraft launch systems and oxygen generation and train fighter pilots, Fars reported.
Vahidi said it was named after the daughter of Dariush Rezaeinejad, an Iranian scientist who was shot dead last year.
Iran believes agents working with foreign intelligence services including the American CIA and Israel's Mossad are behind the assassinations of several of its nuclear scientists.