The Arrow 3 system -- designed to shoot down ballistic missiles above the Earth's atmosphere -- is jointly developed and produced by Israel and the United States.

Israel's defence ministry said the US State Department had notified it of the US government's approval for Germany to procure the Arrow 3 system.

"The Israeli ministry of defence, German federal ministry of defence, and Israel Aerospace Industries will sign the landmark $3.5 billion defence agreement," it said.

The ministry said senior officials from the Israeli and German defence ministries would sign a letter of commitment to the deal with a preliminary payment of $600 million.

"With its exceptional long-range interception capabilities, operating at high altitudes above the atmosphere, (the Arrow 3) stands as the top interceptor of its kind," it said.

"The system employs a hit-to-kill approach for intercepting incoming threats."

Defence Minister Yoav Gallant called the agreement "the largest in Israel's history".

"This is a significant decision, which will contribute to Israel's force buildup and economy," he said.

Israel Missile Defense Organization director Moshe Patel said: "We are talking about a defence agreement with Germany 78 years after the Holocaust where Israel is selling a system that is going to protect German citizens."

German Defence Minister Boris Pistorius welcomed the agreement, calling Arrow 3 "essential to be able to protect Germany from ballistic missile attacks in future". His ministry added that Berlin aimed to integrate the system into NATO air defences.

The Arrow 3 can intercept ballistic missiles fired from a distance of up to 2,400 kilometres (1,490 miles), according to IAI.

- European interest -

Partly US-financed, the Arrow system was developed and produced by Israel Aerospace Industries in partnership with Boeing.

IAI would set up new infrastructure for the German programme and hire new engineers and production employees in Israel and in the United States, Patel said.

"The German government wants it to be exactly as the system that we use," he told journalists in an online briefing, adding half of the components would be produced in the United States by an American subsidiary of IAI.

Germany is buying the "full architecture" of the system that can protect its citizens across the country, Patel said.

"I can't elaborate more than this, but there is a lot of attention from other nations, specifically in Europe, to have the Arrow 3 weapons system," he said.

IAI president Boaz Levy said Arrow 3 was a "mobile system".

"You can shift it according to your threats, and that's why Germany is buying the system that can be utilised according to its own requirements," Levy said.

The deal makes Israel a "significant" player, said Miri Eisin, a former Israeli military intelligence colonel.

"It means that Israel is not just a regional actor" but is now on the world stage, she told AFP, adding the system was purely "defensive".

The system was first deployed at an Israeli air force base in 2017 and has been used to protect Israel against attacks from Iran and Syria.

The final contract for the deal is expected to be signed by the end of 2023 after it is approved by the parliaments of both Germany and Israel, the Israeli defence ministry said.

Berlin expects the Arrow 3 system to be delivered in the final quarter of 2025.

The German government has led a push to bolster NATO's air defences in Europe after seeing Russia's relentless missile strikes on Ukraine, urging allies to buy deterrence systems together.

More than a dozen European countries have so far signed up to the so-called European Sky Shield initiative.

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