Southern Israel has suffered thousands of missile strikes by groups in the besieged Gaza Strip during the past decade. Such rocket fire was cited as a key reason for its three-week offensive on the Hamas-ruled Gaza Strip that ended last January.
Hezbollah, the Shia group which controls large areas of southern Lebanon and opposes Israel, is said to have more than 40,000 rockets.
Placing the defence shield along its borders with the occupied West Bank would ease security fears, removing one reason for Israeli control there.
"Making Iron Dome operational will transform Israel's diplomatic and security situation on the northern and southern fronts," Pinhas Buchris, the defence ministry's director general, said.
Shlomo Dror, is defence ministry spokesman, told Al Jazeera: "In the future it will provide more security for people living around Gaza and all over Israel.
"Its very import for is to find some kind of solution with the Palestinians in the West Bank ... that will enable Israel to take some steps towards the Palestinians after having [greater] measures to protect Israelis."
However, Dror earlier told reporters that the system will not provide 100 per cent protection against rocket attacks.
The Iron Dome uses small radar-guided missiles to target small rockets and mortar bombs within a 5km and 70km range.
Israel already has a long-range missile defence system and is planning to develop a medium-range system in coming years.
Israel withdrew from the Gaza Strip in 2005, but currently maintains a blockade on the territory.
Its offensive there at the end of 2008 and beginning of 2009 saw about 1,3000 Gazans killed, while 13 Israelis died due to the conflict.
The impetus behind the Iron Dome project was Israel's 2006 war with Hezbollah, during which the Shia group fired about 4,000 rockets into the north of the country.