An Israeli defence industry executive told journalists on Sunday the two countries struck a preliminary deal in October and made further progress last week when Moshe Keret, head of Israel Aircraft Industries (IAI), was in India.
IAI, the maker of the Phalcon systems, will then deliver the first system in 18 to 24 months.
The deal is similar to one Israel made a few years ago with China where the United States forced Israel to cancel the agreement.
Washington cited fears China could use the strategic systems against US ally Taiwan in any conflict.
The Israeli defence executive said the United States had given Israel the green light to sell the Phalcons - to be mounted on Russian aircraft - to India.
The Phalcon can pick up aircraft, including at low altitude, hundreds of kilometres away in any weather, day or night. It can also intercept and decode radio transmissions, anticipating in many cases the weaponry an enemy might deploy.
The technology would enable the Indian air force to pry deep into Pakistani airspace.
India last week announced a $5.5 billion defence modernisation fund to help its military - the world's fourth largest - to buy airborne warning and control systems (AWACS) and other defence equipment.
Israeli Foreign Minister Shalom
seeks to promote relations further
News of the deal comes as Israeli Foreign Minister Silvan Shalom embarks on a three-day visit to India to hold talks with Prime Minister Atal Behari Vajpayee.
Shalom was also due to hold talks with his counterpart Yashwant Sinha and Defence Minister George Fernandes in the latest chapter of a burgeoning friendship between the two countries, a foreign ministry statement.
The minister will travel to Mumbai where he will meet members of the 5000-strong Jewish community in India's commercial capital.
India did not establish full diplomatic ties with Israel until 1992, but their cooperation has since taken off, particularly in defence with Israel now India's largest defence supplier after Russia.
In September Ariel Sharon made the first visit by an Israeli prime minister to India and a month later New Delhi signed a one-billion-dollar deal to buy the Phalcon military radar system from Israel.
The level of bilateral trade beteen the two countries reached $1.5 billion last year, the foreign ministry said.