The Arrow 3's radar system detected the Sparrow target missile fired by the Air Force and transmitted its coordinates to BMC system (Battle Management Control), which analyzed the information and planned the interceptor's trajectory.
The interceptor missile was then fired from the Palmachim Beach towards the sea, successfully hitting the target and destroying it outside the earth's atmosphere.
The Arrow 3 missile defense system is being developed by the Israel Aerospace Industries (IAI) and its subsidiary Elta, the latter being in charge of the radar detection system. Elisra, a subsidiary of the Israeli company Elbit Systems, developed the Arrow 3's firing management system, while Israeli company Rafael developed the interceptor missile. The American company Boeing also helped develop and manufacture the Arrow 3.
A year ago, a similar test of the Arrow 3 failed, and Thursday morning's test was done after lessons were learned from the previous one.
Defense officials said the Arrow 3 failed to launch during the December 2014 test because it was not able to lock on the target so "a decision was made not to waste the interceptor missile."
"The success of the Arrow 3 system today ... is an important step towards one of the most important projects for Israel and Israel Aerospace Industries (IAI) becoming operational," said Joseph Weiss, IAI's chief executive officer.
Additional tests are planning for the Arrow 3 system in the future.
The Arrow 3 is the main component of Israel's multi-layered defense system that the Defense Ministry is developing in its Research and Development Agency Mafaat. The Arrow 3 is meant to provide the third layer of defense, the highest one, intercepting long-range missiles like the Iranian Shahab-3, which could target Israel from thousands of kilometers away.
Arrow 3 interceptors are designed to fly beyond the earth's atmosphere, where their warheads detach to become 'kamikaze' satellites, or "kill vehicles", that track and slam into the targets. Such high-altitude shoot-downs are meant to safely destroy incoming nuclear, biological or chemical missiles.
The first layer of defense is the David's Sling system, the development of which and its introduction to the Air Force are scheduled to be completed within a year. David's Sling is meant to provide protection from medium-to-long-range missiles, alongside heavy rockets and "suicide drones."
The second layer of defense is the Iron Dome system, meant to protect from short-to-medium-range rockets.
In recent years, the Arrow 2 defense system has been protecting Israel's skies, alongside the Patriot missile system and the Iron Dome, the latter two have already proven themselves in stopping projectiles coming from the Gaza Strip and the northern border.
The defense establishment is constantly working to upgrade the Iron Dome system to allow its batteries (which would number at 10 in the coming months) to handle several barrages at the same time, including larger rockets launched from different locations, as well as to cover a larger area.
The United States has its own system for intercepting ballistic missiles in space, Aegis, but a senior Israeli official played down any comparison with Arrow 3.
While it "might be true" that the allies were alone in having such proven capabilities, "Israel is not on the level of the US," Yair Ramati, head of anti-missile systems at the Defense Ministry, told reporters.
Israel's strategic outlook has shifted in recent months, given the international deal in July curbing Iran's nuclear program, the depletion of the Syrian army's arsenal in that country's civil war and Hezbollah's reinforcement of Damascus against the rebels. Israel and Hamas fought a Gaza war in 2014 but the Palestinian enclave has been relatively quiet since.
Nonethless, a senior Israeli official said there was no sign of waning government support or weakening U.S. backing for the various missile defence programmes.
"Everyone knows that you have to prepare with an eye well beyond the horizon, especially as the enemy's capabilities improve all the time," the senior official told Reuters.
In the coming months the Defense Ministry and Israeli military will discuss a possible schedule for deployment of Arrow 3, Ramati said, adding that further tests of the system were expected.
Reuters contributed to this report.