The Arrow 3 is part of Israel’s missile defence system and is designed to shoot down incoming threats.
Germany has its eye on the Arrow 3 as it upgrades its military and fronts an effort to improve Europe’s air defences.
The US is involved in negotiations on a sale because American plane maker Boeing helped to develop the Arrow 3.
Boaz Levy, chief executive of Israel Aerospace Industries, said talks between the three countries were “moving forward to a contract … that will be able to address German needs”.
“If I can give you a small prediction, I think this contract will be finalised within several months,” Mr Levy told a defence and security conference near Tel Aviv.
He said there could be interest from other countries in what he called the world’s best system for intercepting missiles.
“If the Germans are defending and arming themselves, other countries will as well,” Mr Levy said.
Germany has allocated €100 billion ($108.2bn) to refurbish a military that has been in decline since the Cold War.
A 17-member alliance led by Germany founded the European Sky Shield Initiative last year to boost the continent’s air defences.
Manufacturers describe the Arrow 3, operational since 2017, as a means of neutralising threats long before they reach their target.
A brochure by Israel Aerospace Industries says it is designed to “shoot down threats outside the atmosphere, closer to their launch sites”.
It complements Israel’s Iron Dome, which is designed to fend off short-range missiles and rockets.
Berlin has a close defence relationship with Israel, reflecting what Germany calls a special responsibility arising from the Holocaust.
However, German MPs have criticised the Israeli government over reforms by Mr Netanyahu that some have called anti-democratic.
Tobias Lindner, a minister in Germany’s Foreign Office, was visiting the region this week for talks on the Middle East peace process.
He said Germany was “a reliable partner for peace and security in the Middle East” and, alongside the EU, was taking on “a changing role in the international security architecture”.