Peretz has reportedly settled on the Rafael Armament Development Authority’s "Iron Dome" interception system, which intercepts short-range rockets such as Kassams and short-range Katyushas.

Defense Ministry officials said the project will cost approximately NIS1 billion and will require separate, external funding. Following some tension over whether Peretz had made a unilateral decision without consulting Olmert, it has been agreed that Olmert and Peretz will meet with defense officials on Sunday to discuss the decision.

The government considered or tested at least four different anti-missile systems over the past several months. Three of the four are produced in Israel and all are expensive.

The government has been searching for ways to protect western Negev communities against the constant barrage of Kassam rockets fired by Gaza terrorists that will not require deployment of ground troops.

Both Kassam and Katyusha short-range rockets were fired last summer during the double-front war fought with Hizbullah and Hamas terrorists in Lebanon and Gaza. Kassams fired from Gaza have continued to threaten Israeli communities in the western Negev, and their ranges have gradually expanded.

The front-line community of Sderot has suffered constant barrages over the past year. Hundreds of residents have been injured as a result of the deadly attacks and at least three were killed during that time. Damage to the industrial zone has cost millions of dollars in lost business revenue and many manufacturers are considering leaving the area.

Anti-missile defense on Israeli airliners has also become a top priority. Prime Minister Olmert ordered the Finance Ministry last December to transfer some $5 million to equip El Al planes with defense systems against shoulder-fired missiles.

Gaza terrorists have claimed they have rockets capable of downing Israeli aircraft, and reports indicated they smuggled in a propellant used for surface-to-air missiles.