* Arrow III is part of Israel's layered aerial shield
* US-backed system will hit incoming missiles in space
By Dan Williams
JERUSALEM, Feb 25 (Reuters) - Israel carried out a successful first test on Monday of its upgraded Arrow interceptor, which is designed to destroy in space the kind of missiles held by Iran and Syria, defence officials said.
The U.S.-backed Arrow III will deploy "kamikaze" satellites that track and slam into ballistic missiles above the earth's atmosphere, high enough to allow for any chemical, biological or nuclear warheads to disintegrate safely.
Monday's test was the first flight of the system, but did not involve the interception of any target. Israel deployed the previous version, Arrow II, more than a decade ago and says it has scored around a 90 percent success rate in live trials.
"Arrow II was 'Star Wars'. This is 'Distant-Star Wars'," Yoav Turgeman of state-run Israel Aerospace Industries (IAI), the system's manufacturer, told Army Radio.
Launched from a coastal air base south of Tel Aviv, the Arrow III interceptor missile manoeuvred for 6 1/2 minutes over the Mediterranean sea, Israeli defence officials said. The test was attended by representatives of U.S. partner firm Boeing and the Pentagon.
"The success of the test is an important milestone in the operational capabilities of the State of Israel to be able to defend itself against threats in the region," Israel's Defence Ministry said in a statement.
A ministry official who briefed foreign reporters said the timing of the test, which took months to prepare and was postponed from mid-2012, was unrelated to current Israeli fears.
Topping these are Iran, whose disputed nuclear drive is the focus of international sanctions, and Syria, which has been wracked by a two-year-old civil war and whose arsenal is believed to include chemical warheads.
Israel plans another Arrow III flight test followed by a simulated interception in space over the Mediterranean, the defence official said. Israeli officials previously predicted the new system would be deployed by 2014 or 2015, alongside Arrow II.
"Israel's hand is always outstretched in peace but we are also prepared for other eventualities. In this vein, I praise the successful test of the Arrow III," Prime Minister Benjamin Netanyahu said in a statement.
Arrow is the long-range segment in Israel's three-tier missile shield. This also includes the successfully deployed "Iron Dome", which targets short-range rockets and mortar bombs favoured by Palestinian guerrillas in Gaza, and the mid-range "David's Sling", still under development. They can be deployed alongside U.S. counterpart systems like the Aegis.
Officials say that if Arrow failed to hit an incoming missile at high altitude, there would still be time to destroy it with other systems before it landed on its intended target.
The United States and Israel have been developing Arrow jointly since 1988. Washington says helping Israel develop the capability to shoot down missiles will help prevent wars in the Middle East.
In a statement, the Pentagon's Missile Defense Agency called Monday's launch "a major milestone" which "provides confidence in future Israeli capabilities to defeat the developing ballistic missile threat".
Boeing thinks other potential clients for the system may include India, Singapore and South Korea.
"As we prove out that technology, and show that it's not only affordable but effective, we think there will be additional global market opportunities for that capability," Dennis Muilenburg, chief executive of Boeing's defence, space and security arm, told Reuters last year.
The U.S. financial contribution to progressively improved versions of the Arrow system tops $1 billion, the Congressional Research Service said in a March 2012 report to lawmakers.