Iron Dome's success could improve the prospects of Israel eventually ceding West Bank land to the Palestinians, as Israeli officials have said that any withdrawals should be conditional on the deployment of a reliable defense against rocket attacks.

Designed by state-owned Rafael Advanced Defense Systems Ltd., Iron Dome uses small guided missiles to blow up Katyusha-style rockets. Israel plans to station the first working unit outside the Hamas-ruled Gaza Strip next year.

"This was the first time Iron Dome was tested with the aim of a metal-to-metal result," a defense official said, describing the mid-air interception. "The [target] rocket was completely destroyed."

Iron Dome would be capable of intercepting rockets with ranges of between 5 km and 70 km, the official said.

"When you don't have a system like this, you can get dragged into wars that prove far more expensive," said Alon Ben-David, a strategic analyst.

Iron Dome is envisaged as the lowest level of a multi-tier aerial shield capped by Arrow, a partly U.S.-funded system which shoots down ballistic missiles at higher altitudes.  -Reuters