Israel successfully carried out the first flight test of its high-altitude Arrow-3 missile interceptor Monday, a major step forward in shielding the Jewish state from ballistic missiles capable of carrying nuclear or chemical warheads.

The updated Arrow system, developed by Israel Aerospace Industries and the Boeing Co. of the United States, is designed to destroy hostile missiles outside Earth's atmosphere and, in the words of a senior Defense Ministry official, "keep Israel clean."

Monday's 6 1/2-minute test over the Mediterranean Sea, which had been delayed for more than a year, was hailed by Defense Minister Ehud Barak as an "important milestone" in the development of Israel's planned multilayered missile defense system.

But despite the back-slapping in Israel's defense establishment, there are growing concerns that severe U.S. budget cuts could halt vital funds from Washington for developing and producing the Jewish state's arsenal of anti-missile systems.

The so-called Hom -- "wall" -- project, involving four layers of missile defense systems with Arrow-3 the topmost tier, is considered critical for Israel's capability to defend its cities and strategic installations from potentially massive and unprecedented bombardment by Iran, Hezbollah in Lebanon, Hamas in the Palestinian-ruled Gaza Strip, and possibly even Syria.

Israel's Globes business daily reported from Washington that "the pending U.S. budget sequester on March 1 is liable to reduce military aid to Israel by over $700 million in fiscal 2013."

Citing "pro-Israeli sources" in Washington, the newspaper said the cut includes a $250 million reduction in current military aid, which is due to total $3.15 billion this year. It also noted "the possible loss of all financial aid for joint U.S. Israeli missile defense programs, amounting to $479 million, for a total loss of $729 million in reduced aid.

"In the best case, if the aid for anti-missile programs is only reduced, rather than eliminated, Israel will lose $300 million in aid," Globes reported.

The United States had provided in excess of $1 billion to the Arrow program, which began in 1988 and which has produced progressively improved variants since then, with at least two Arrow-2 batteries currently deployed operationally.

The U.S. budget cuts could affect two other missile-defense programs that Israel's developing with U.S. financial support.

One is Iron Dome, developed by Israel's Rafael Advanced Defense Systems and designed to intercept short-range rockets and missiles. This has been combat tested since April 2012 and has a kill rate of around 87 percent.

An updated version capable of countering missiles with a range of up to 140 miles was recently deployed.

The other system is David's Sling, still being developed by Rafael and the Raytheon Co. of the United States, also designed to intercept mid-range missiles. It's scheduled for deployment in 2014.

Arrow 3, which Aviation Week says is "judged by many in the U.S. and Israel as today's best missile defense system," is expected to be operational by 2016.

The two-stage Arrow-3 interceptor has twice the range of Arrow-2, which will eventually be used to provide cover against ballistic threats at a lower altitude, despite being significantly smaller and weighing only half as much.

The Jerusalem Post reported that "costs have dropped as well, with the Arrow-3 interceptors expected to run to $2.2 million apiece, about 20 percent less than Arrow 2."

"So far, Boeing has contributed about one-third of the interceptor components and will be responsible for 50 percent of production moving forward, with the rest done by IAI in Israel," the Post said.

It noted that the United States "receives all data from Israeli field tests, reaping the benefits of a program it has helped fund."

Monday's Arrow-3 test was conducted by Israel's Missile Defense Organization and the U.S. Missile Defense Agency, the Defense Ministry said. It disclosed the test was conducted at a military site on the Mediterranean. Most probably that was the Palmachim airbase south of Tel Aviv.

The test didn't involve the interception of a missile but focused on Arrow-3's capabilities and performance in flight.

The system deploys maneuverable "kamikaze" satellites that crash into incoming ballistic weapons while they're high enough above the Earth that non-conventional warheads could disintegrate safely, the ministry says.