JERUSALEM — The Israeli government has announced that it will sell the Arrow 3 missile-defense system to Germany, a $3.5 billion deal, marking it as Israel’s largest defense export ever.

The sale was made possible after U.S. Department of State officials notified senior defense leaders here of the approval. The step is necessary because the system is a co-development between Washington’s Missile Defense Agency and the Israel Missile Defense Organization, led by local contractor Israel Aerospace Industries.

The Arrow 3 weapon is designed to intercept ballistic missiles during their flight paths outside Earth’s atmosphere. Its commercial production began following an intercept test in December 2015.

The Israeli Ministry of Defense noted on its statement that the next step in the sale to Germany is a signing ceremony of a “letter of commitment” between senior defense officials from both countries.

An initial commitment by Berlin of $600 million will kickstart work on the project, according to the ministry statement, with details for next steps to be agreed following the letter of commitment. The full contract should be ready to sign by the end of 2023 after lawmakers from both parliaments give their approval, the statement adds.

The deal comes after Germany declared Russia as its biggest security threat in Berlin’s first-ever National Security Strategy (NSS), released in June, and with Moscow’s invasion of Ukraine in the background.

The war exposed a shortage of defense systems in Western nations, especially ground-based, to counter missile and drone attacks.

“Arrow 3 is a groundbreaking system, the most advanced of its kind in the world, as well as a force multiplier in Israel’s air defense – soon in Europe, as well,” Israeli Defense Minister Yoav Gallant, said.

This deal is expected propel Israeli defense exports to a new record, following last year’s total of $12.5 billion, per the MOD.

Tzally Greenberg is the Israel correspondent for Defense News. He has experience reporting on economic affairs as well as defense and cyber companies.

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