Israel has successfully tested its indigenous Arrow anti-missile system, carrying out the most complicated interception so far, the Army said.
India is also said to have evinced interest in the system, which was tested at a secret location in the centre of the country and is being seen by many as a response to the growing threat from Iran.
The Arrow system was activated to intercept a long-range ballistic test missile of sophisticated manoeuvrings capabilities, which it intercepted and destroyed, defence sources said.
Defence ministry officials told daily Ha'aretz that the test was a response to the increasing threat of ballistic missiles in the region, in an oblique reference to Iran, but similar sources denied any such connection in interviews to Ynet and called it a routine test.
The test launch comes amid reports that Iran has signed a deal to buy Russian tactical surface-to-air missile systems and a day after Prime Minister Ariel Sharon warned of the dangers of a nuclear Iran.
Ha'aretz quoted Defence Ministry Director-General Yaakov Toran as saying, "The success of the test will improve the operational capabilities that already exist in the Arrow system, which will be able to successfully cope with future threats."
The simulated enemy missile used in the test resembles the Iranian Shahab-3 and is capable of carrying a nuclear warhead, the daily's online version said.
Prime Minister Ariel Sharon on Thursday said that Israel could not accept the emergence of a nuclear Iran, which poses an existential threat to the Jewish state.
"Israel, and not only Israel, cannot accept a situation in which Iran has nuclear weapons," Sharon said, adding, "We are also taking all the necessary preparations to be ready for this kind of situation."
Today's test is the 14th test of the Arrow system, being developed with the United States, and the ninth test of the missile itself.
Meanwhile, the local media reported that Iran is to buy 29 TOR-M1 systems, designed to bring down aircraft and guided missiles at low altitudes, citing Russian defence sources close to the deal.
The deal is said to be the biggest sale of Russian defence hardware to Iran in about five years, the reports said.