By Dan Williams

WASHINGTON, Oct 17 (Reuters) - An Israeli system for shooting down Palestinian short-range rockets could be ready by 2010, Israeli Defense Minister Ehud Barak said on Wednesday.

Israel failed to stem rocket salvos from the Gaza Strip after quitting that territory in 2005, and Barak has argued that better countermeasures must be in place before any West Bank withdrawal is considered.

Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas are to attend a U.S.-sponsored peace conference expected next month to address Palestinian demands for a state in the West Bank and Gaza.

Barak, who had talks in Washington this week on a joint U.S.-Israeli system for countering ballistic threats, said the project's lowest tier -- Iron Dome -- was near completion.

"If all goes well, in 2-1/2 years we can do our first trials," he told reporters.

Developed by Israeli arms firm Rafael, Iron Dome is billed as the most effective answer to the crude rockets favored by Palestinian militants.

The next tier of the layered anti-missile system is David's Sling, which would tackle medium-range rockets like those fired by Hezbollah guerrillas at Israel during the 2006 Lebanon war.

Barak said David's Sling, a joint Israeli-U.S. initiative, would "take a little more time" than Iron Dome to reach trials.

'ARROW III'

The top tier of the anti-missile system is Israel's Arrow II, developed in partnership with the Pentagon and operational for several years. Israel considers Arrow its main bulwark against future Iranian or Syrian ballistic missile attacks.

Barak said Israel and the United States have decided to extend Arrow's interception altitude and ability to shoot down several incoming ballistic missiles at once, reinventing it as "Arrow III."

"This will counter missiles that come, effectively, from space," he said.

Israel, like its ally Washington, is keeping an eye on Iran's nuclear program for fear it aims to produce warheads. Iran said its intentions are peaceful and has pledged to retaliate for any U.S. or Israeli strike on its nuclear sites.

Believed to have the Middle East's only atomic arsenal, Israel has hinted that it could resort to force to stop its arch-foe acquiring the bomb. But Barak said an improved Arrow "can prevent war, because when a country has such a system it cannot be threatened by missiles."

"When there is no such system, it invites war," he added, without elaborating on when Arrow III might be ready.

Following Barak's talks with Gates on Tuesday, officials said work teams from both sides would hammer out plans for a system synthesizing Iron Dome, David's Sling and Arrow.

Barak anticipated international interest in the system. "It will be a first-class export item because use of missiles will be more and more widespread. I think there will be more and more countries that will want to procure such a system," he said.

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