“The Israeli ministry of defence, German federal ministry of defence, and Israel Aerospace Industries (IAI) will sign the landmark US$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 US$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.”

Prime Minister Benjamin Netanyahu called the agreement “the largest defence sale” in Israel’s history.

“Seventy-five years ago, the Jewish people were crushed to ashes in Nazi Germany,” he said in a statement. “Seventy-five years later, the Jewish state gives Germany, another Germany, tools to defend itself … What a historic turning point.”

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 2,400km (1,490 miles), according to IAI.

Partly US-financed, the Arrow system was developed and produced by IAI 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, said Moshe Patel, director of the Israel Missile Defence Organisation.

“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 said, 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.