Israel's announcement that it will spend $2 billion on building up its anti-missile defense system over the next few years, on top of whatever it can squeeze out of the Americans, underlines the military's deep concerns that the country faces a new kind of war.

The military is wrestling with how to fund multiple objectives over the next few years at a critical juncture in Israel's 63-year history.

Defending military installations and Israel's cities, for the first time vulnerable to firestorms of missile attacks, is just one priority, but a pressing one.

Arms procurement is another, split between bolstering the air force, acquiring new German submarines that, reports say, will be capable of launching nuclear-tipped missiles and maintaining sizeable ground forces.

Right now getting Israel's multilayered missile-defense system in place is a key priority because missiles and rockets will be the spearhead of any assault by Iran or Syria, Hezbollah in Lebanon or Hamas in the Palestinian-ruled Gaza Strip -- or all four together.

The political pressure to protect Israel's population centers has become intense amid fears a new war is looming.

On Monday, the Haaretz daily quoted the director general of the Defense Ministry, Reserve Maj. Gen. Udi Shani, as saying Israel plans to invest $1 billion in the development and production of the Iron Dome interception system.

This radar-guided system, designed to shoot down rockets and missiles with a range of 3-45 miles, as well as mortar shells, was deployed in southern Israel earlier this year.

But it remains under development by the Haifa-based Rafael Advanced Defense Systems.

So far there are only two batteries, which in March shot down eight of nine Grad-type rockets fired from Gaza. But the system has yet to be tested against a major, sustained rocket bombardment.

Each battery costs $80 million. Israel needs at least 13 more but Shani spoke of another 10-15. Of these, a U.S. grant of $205 million will pay for four.

Shani said another $1 billion will be spent on the Magic Wand air-defense system, designed to down intermediate missiles with ranges of 25-185 miles. This two-stage system, also known as David's Sling, is being developed by Rafael and the U.S. Raytheon Corp.

"I hope that by 2012 we'll have the first operational capabilities," Shani said. "We need to accelerate the process."

Along with the third, high-altitude tier, the Arrow 3 built by state-owned Israel Aerospace Industries in conjunction with the Boeing Co., the Israeli air-defense system "will be the largest technological development project in the field of missile interception in the world," Shani observed.

The defense establishment's expensive focus on building an anti- missile shield was given great impetus by the 34-day war with Hezbollah in 2006.

During that conflict, Hezbollah fired nearly 4,000 rockets into northern Israel in the most sustained bombardment the Jewish state has ever endured.

Today, that threat has grown immensely and, outside of nuclear attack, is the greatest danger the Jewish state faces.

Israel's military is bracing for a war that could last up to two months, probably in the summer months, this year or next. Major military campaigns in the Middle East generally take place during summer.

That's the best time for Israel because its air power is most effective with clear skies, while ground forces can maneuver more easily.

"Having in mind the massive arms buildup in the region during the past few years, we can expect any large conflict to be unusually brutal," Israel-based analyst Victor Kotsev observed.

"Israeli military planners have predicted that hundreds of missiles will rain on Tel Aviv -- mostly from Syria and Lebanon -- and have issued grim warnings that they will do whatever it takes to curtail the fire."

The Israelis say Hezbollah, armed by Iran and Syria, has more than 42,000 missiles and rockets, including several hundred long-range weapons capable of hammering Tel Aviv, Israel's largest urban area and its financial and industrial center.

The Palestinian Hamas, also aided by Syria and Iran, has an estimated 5,000 rockets, Israel claims.

Since it could take two months for Israeli forces to clear Hezbollah out of south Lebanon and knock out its heavily fortified missile sites, Israel could be hit by up to 400 missiles a day during that period.