1. A model based reasoning system having dynamic domain abstraction, the model-based reasoning system comprising: an abstraction determining module, implemented on a processor device, configured to identify an abstraction level for a system model of a real world system to be analyzed from a plurality of potential abstraction levels; and a system reasoning module, implemented on a processor device, configured to perform analysis on the system model of the real world system at the abstraction level determined by the abstraction determining module, wherein the system reasoning module configured to perform analysis is particularly configured to perform at least one of a diagnosis of the real world system or a simulation of the real world system.