HERZLIYA, Israel – The completion of an Israeli strategic missile shield underwritten by the United States has been called into question as the budget-strapped Pentagon eyes a U.S. alternative.

Israel describes its Arrow II system, which shoots down ballistic missiles, as a bulwark against Iran. Arrow III, a higher-altitude version, is on the drawing board and is designed to cap off Israel's multi-tier air defenses.

But with production schedules hazy and Washington battling economic crises, the United States has hinted it may favor its Standard Missile-3 (SM-3), which is deployed aboard naval vessels.

We think achieving the schedule ... stipulated by the Israeli government is very ambitious and very high-risk, David Altwegg, executive director of the Pentagon's Missile Defense Agency, told reporters last week.

Therefore, that would affect the cost of the program, and we believe there are probably options like Standard Missile-3 ashore (land version) that need to be studied.

The Pentagon's 2010 budget plan earmarks $120 million for Arrow and related Israeli projects, as well as money for SM-3.

Some believe Arrow -- jointly produced by state-owned Israel Aerospace Industries and the American firm Boeing Co., and which has absorbed close to $1 billion in direct U.S. funds since its 1988 inception -- could be blunted.

Addressing an international conference on missile defense at the Fisher Institute, a think-tank outside Tel Aviv, Israeli air force chief Major-General Ido Nehushtan said Arrow III would take more than four years to complete -- and that would depend on how much effort is made, and on the resources available.

PEACE IMPACT

The timeline bears on U.S. President Barack Obama's bid to revive Israeli-Palestinian peacemaking and wider regional talks. Israeli Defense Minister Ehud Barak has said his country would need to be assured of its ability to fend off ballistic missiles before it could cede occupied Arab land that serves as a buffer.

Michael W. Booen, a vice president of Raytheon, the company that makes SM-3, said a land-based version of the interceptor that could be used by Israel has been in the works for several years. But he did not offer a completion date.

Arrow designer Uzi Rubin said it would take at least two years for Israel to incorporate such a converted SM-3.

According to a senior Israeli defense official, Arrow III's interceptor missiles, projected to cost some $1.7 million each, would be four or five times cheaper than the SM-3 -- though some of that outlay could be defrayed by drawing on the $3 billion in annual U.S. defense aid to Israel. Raytheon declined to respond.

Obama hosts Israeli Prime Minister Benjamin Netanyahu in the White House next week and some experts think his administration may offer to deploy Aegis ships off Israel's coast as a stop-gap guarantee against a possible flare-up with Iran or Syria.

The United States is expected to involve Aegis, for the first time, in joint air defense drills with Israel this year. A U.S. missile radar, the X-band, was shipped to Israel's Negev desert with an American garrison last year, and linked to Arrow.

Underlying the tussle between Arrow and SM-3 are commercial concerns. A completed Arrow system could be a major export item.

Israeli officials say India and Turkey have expressed interest but the United States has so far vetoed such a sale, despite its likely benefits to Boeing. By contrast, Aegis has been sold to several foreign clients.

For all the good intentions, neither we nor the Americans are losing sight of the fact that a decision in this matter will mean that someone has to close down a production line, at a very bad economic time, an Israeli industry source said.

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