If one day we will need it, the system is functioning

Head of Arrow programme

Officials said the Arrow intercepted a simulated ballistic missile target launched at the Israeli coast similar to the Scud missiles that Iraq fired at Israel during the Gulf War in 1991.

Although the Arrow has had successful tests previously, this is the first time it has intercepted a small, high-speed missile head on.

Barak: "Significant contribution to Israel's military and strategic strength"

"The Arrow was fired at the target in a stable, precise manner until it hit and destroyed the target," said Daniel Peretz, head of the Arrow programme at Israeli Aircraft Industries.

"If one day we will need it, the system is functioning," he told Israel radio. "The system has become operational."

However, he added that IAI would continue to test the system regularly and that the next test would take place in several months.

Israeli defence officials said this test brought the Arrow-II success rate to seven out of eight tests and three out of three system tests.

They said initial results showed the Arrow's three main systems - the missile, the tracking radar and the fire control mechanism - had performed as planned.

World first

Israeli Prime Minister Ehud Barak said the test was "a vital component in maintaining Israel's deterrent ability and will make a significant contribution to the state of Israel's military and strategic strength".

The deployment of the Arrow will make Israel the first country in the world to have its own anti-ballistic missile capability.

The test is reported to have been delayed several times over the past few weeks because of technical problems.

Israel has bitter memories of 1991 Scud attacks

Israel radio said the test was watched by a US Pentagon missile team and the missile operated "precisely according to plan".

During the Gulf War, American Patriot anti-missile missiles were widely used by Israel and other states, but they were not credited with hitting any incoming Iraqi Scud.

The Arrow project is expected to cost more than $2bn with at least half of the funds coming from direct US funding.

Correspondents say critics see the Arrow project as prohibitively expensive and incapable of stopping large numbers of incoming enemy missiles.