If that standoff, over Iran's contentious nuclear program, does erupt into open war in the Middle East that could result in Iranian Shehab-3 missiles streaking toward the Jewish state.
The Arrow-3 will be Israel's first line of defense against ballistic missiles when it becomes operational. It's slightly smaller than the Arrow-2, currently in service with the Israeli air force, but much more powerful and accurate and is intended to specifically to counter an Iranian nuclear threat.
Israel is small, the size of New Jersey, and thus could be effectively knocked out by one well-placed nuclear strike in its central sector around Tel Aviv, the country's commercial and industrial core.
"Israel's too small to absorb a nuclear strike," a senior defense official observed. "The Arrow-3 will minimize the chance of enemy missiles penetrating our defense shields."
The U.S. Aviation Week magazine said the Arrow-3 "will be a critical strategic asset against Iranian ballistic missiles."
The medium-range Arrow-3's designed to intercept missiles beyond Earth's atmosphere and at a much longer range than Arrow-2. This means the Israelis have the time to take additional shots at a hostile missile if the first Arrow misses.
Like the 1.3-ton Arrow-2, the 3 is a two-stage, solid-fuel interceptor. But unlike Arrow-2, which uses a proximity warhead to explode 40-50 yards from its target to destroy it, Arrow-3's designed to hit its target.
For the moment, that's generally seen as being the Shehab-3b that is Iran's frontline strategic weapon.
On Jan. 23, IAI and Boeing announced they would work together on the Arrow-3, continuing a partnership that jointly developed the Arrow-2 over the last decade.
The United States has contributed more than $100 million for Arrow-3. Indeed, more than half the $3 billion bill for developing and producing the Arrow came from Washington, as well as technology developed by U.S. companies.
In December, the U.S. Congress approved giving Israel $236 million in fiscal 2012 for its counter-missile programs. IAI got $13 million of that for Arrow-3. The Arrow System Improvement Program got a $47 million boost.
Israel has said it needs $3.9 billion to produce several batteries of Arrow-3, as well as large sums for other component systems in a planned four-tier missile defense shield.
With the government planning to slash the defense budget by $800 million -- the military says the cuts could end up totaling $2.4 billion -- the missile-defense systems, along with other priority programs, will almost certainly be hit.
For Israel, the big problem is that Arrow-3 won't be operational if conflict does erupt in the Persian Gulf. Defense Minister Ehud Barak says 2012 is probably the last year in which Israel could launch effective pre-emptive strikes against Iran's nuclear facilities.
This is because Iran is increasingly transferring its key nuclear facilities into heavily fortified bunkers deep underground, making them pretty much immune to conventional airstrikes.
The best estimate for Arrow-3 being combat-ready is 2-3 years.
Meantime, the anti-missile systems that IAI and Rafael Advanced Defense Systems are developing are seen as big-ticket export hopefuls.
The IAI-Boeing announcement in January stressed that the companies planned to expand their partnership with a robust Arrow export marketing program.
India is interested in the Arrow and Iron Dome, a short-range counter-missile/rocket system manufactured by Rafael and which has proved itself in combat against Palestinian rockets.
Israeli sources say Israel and the United States may sell Arrow-2 to South Korea in a $1.6 billion deal.
Israel's Defense Ministry denies there's any deal. But the U.S. Defense News weekly reports a potential Arrow-2 contract could be concluded with Seoul. South Korea, a longtime U.S. ally, has developed close links with Israel's defense sector.
Korean Aerospace Industries' T-50 advanced jet trainer is a front-runner in an Israeli contest with Italy's Alenia Aermacchi for a $1 billion sale involving 25-30 aircraft. A proposed Arrow buy from Seoul would probably clinch the trainer deal for KAI.
In 2009, Seoul bought two EL/M-2080 Green Pine radar units that support the Arrow system from IAI subsidiary Elta Systems, with deployment scheduled for this year.