Once the improvements are completed, the groundbreaking weapon, developed by Rafael Advanced Defense Systems, will be able to intercept medium-range missiles like Iran's Fajr-5, rather than just rockets with a range of 2-25 miles that it was originally designed to intercept.
The Israeli Defense Ministry says the new variant of the system, largely funded by the United States, has successfully undergone a series of tests involving a "variety of unprecedented threats" and a new battery will be deployed shortly.
The air force won't disclose the range of the upgraded system but there are whispers this could be 300 miles.
The Jerusalem Post reported the upgraded system will "lead to a reduction in the number of batteries Israeli will ultimately require to protect against short-range rockers fired from Lebanon and the Gaza Strip."
It would appear that the new Iron Dome is intended to plug a gap in the multi-tier missile defense shield the Israelis are building, with Iron Dome as the bottom layer.
With its new capabilities it will be able to cope with missiles in the intermediate range, or 25-185 miles, until another Rafael system, David's Sling, also known as Magic Wand, is operational, probably sometime in 2014.
The two-stage David's Sling, which Rafael is developing with Raytheon of the United States, is expected to start undergoing tests in the next few months.
The upper two tiers of the defense shield will be filled by the Arrow-2 anti-ballistic missile built by state-owned Israel Aerospace Industries and Boeing of the United States and the more advanced Arrow-3 currently undergoing final tests.
These are designed to knock out Iran's Shehab-3 intermediate-range ballistic missiles that form the backbone of Iran's strategic missile arsenal and the more advanced Sejjil-2 that's still under development.
Details of Iron Dome 2.0's capabilities are sparse but it's reported to have a new radar system and more sophisticated interception unit as well as a heftier warhead in the Tamir interceptor missiles.
The new battery will be the fifth, and most advanced, Iron Dome unit to become operational. Each costs around $50 million.
The air force, which has charge of Israel's air defenses, is expected to take delivery of the two batteries of upgraded Iron Dome by the start of 2013.
There's been no official indication where the new battery will be deployed. But it's most likely to join at least one of the other four batteries covering the greater Tel Aviv area, Israel's largest urban and industrial area.
This area, containing many strategic installations and a population of around 2 million, is seen as a primary target for long- and medium-range missiles held by Iran, Syria, Hezbollah in Lebanon and Hamas and other Palestinian factions in Gaza.
But the danger to the zone around Tel Aviv is growing because the Palestinians have acquired Soviet-designed Grad rockets and reportedly some Iranian Fajrs as well.
These have a much longer reach than Hamas' Qassam rockets, which are produced in secret factories hidden deep in the enclave's labyrinthine refugee camps.
Some of these new weapons have hit the southern outskirts of greater Tel Aviv in recent months and can also reach the heavily guarded Dimona nuclear reactor in the Negev Desert.
The timing of the deployment of the advanced Iron Domes could be crucial as tension between Israel and Iran, as well as between the United States and Iran in the gulf region, is steadily mounting.
The worsening bloodshed in Syria adds to the tension. Israeli forces reportedly knocked out a Syrian armored vehicle Monday after a mortar exploded on territory they've occupy in the Golan Heights since 1967.
It was a warning shot but it heightened concerns that Israel could get dragged into the Syrian bloodbath, possibly as part a grand design by Assad and his cronies to destabilize Syria's neighbors, which also include Lebanon, Turkey and Jordan, and touch off a wider regional conflagration.
That could drag in Hezbollah, which the Israelis say has more than 43,000 missiles and rockets, including several hundred capable of hitting anywhere in the Jewish state.
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