With Iran said to be on its way to obtaining a nuclear weapon, Israel and the United States plan to hold the largest-ever joint exercise aimed at testing their defense against ballistic missiles.

The drill, dubbed "Austere Challenge," is scheduled to take place in May 2012, and will simulate Israel's ballistic missile defense in action, the Israel Hayom daily reported on Monday.

"It will be the largest and most significant joint exercise in the allies' history," Andrew Shapiro, U.S. Assistant Secretary of State for Political-Military Affairs, said Saturday at the Washington Institute for Near East Policy.

He said that joint exercises allowed the U.S. "to learn from Israel's experience in urban warfare and counterterrorism."

Some 5,000 Israeli and U.S. troops are due to participate in the maneuver, in which the Israel Air Force (IAF) will test its gamut of aerial-defense systems, including Iron Dome -- a system that has already successfully shot down short-range rockets fired by Gaza militants; the upgraded version of the U.S.-made Patriot for intercepting hostile aircraft; Magic Wand -- a system designated to counter medium-range rockets; and Arrow 3 -- a system still under development for intercepting ballistic missiles high in the atmosphere.

Meanwhile, the Americans will bring along THAAD (Terminal High Altitude Area Defense) system -- a key element of the nation's Ballistic Missile Defense System and aimed at intercepting missiles in the final stage of their trajectory. Its high-altitude capabilities are designed to complement the lower-altitude mission of the Patriot anti-missile system.

Israel and the U.S. conduct periodic joint drills that are meant to maintain the strong ties between the two countries' militaries and bring them up to speed on new, state-of-the-art weapon systems.

"The challenge (of the upcoming exercise) is missile interception in an era of planes. The Americans are eager to conduct this drill because we are their 'laboratory' in this context," a senior IAF official told Israel Hayom on Sunday.

News of the joint drill came amid recent local media reports that Israel is planning to strike Iran's nuclear facilities in the near future. Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak were reportedly seeking to secure cabinet majority for such an attack, sparking the ire of senior government officials who accused the media of causing "tremendous damage."

On Wednesday, the IAF test-fired a projectile from the Palmachim Air Base near Tel Aviv, further raising conjecture that the Jewish state is gearing up for a potential attack.

The Defense Ministry has issued a statement saying that the military had successfully test-fired a "rocket-propulsion system" as part of a trial planned long in advance. Local and foreign media speculated that the projectile may had been a Jericho 3, a ballistic missile said to be capable of carrying a nuclear warhead, or perhaps Arrow 3, which is slated to become operational in 2013.

In parallel, the army's Home Front Command has started a two- day civil defense drill in several cities meant to assess methods of response to both conventional and non-conventional missile attacks.

And later on Wednesday, the military announced the completion of an exercise held at a NATO base in Sardinia the previous week, which involved the participation of six IAF squadrons. Israeli fighter pilots practiced flying long-range combat missions, mid- air refueling and combat maneuvers against aviators from a host of European air forces, the military said.

The media buzz, as well as military tests and drills, came as the United Nations nuclear watchdog, the International Atomic Energy Agency, readies to release a dramatic report on the progress of Iran's nuclear program.

The report, due to be published on Tuesday or Wednesday, is expected to reveal intelligence information suggesting that Iran, which claims its nuclear program is intended to generate electricity, is seeking nuclear weapons.

Senior Israeli officials over the past week have reiterated their call on the international community to enforce tighter sanctions against Iran, saying it poses a danger to many other countries besides Israel; while U.S. officials have expressed concern that Israel might attempt to independently attack the Iranian facilities without letting the U.S. in on its operational plans.

Iran has threatened that it would "fiercely respond" to any attack.

In a related development, Israel is accelerating the development of Arrow 3, a system being built to intercept projectiles some 60 miles above Earth. IAF officials said they expected the system to become operational within 18 months, rather than in 2015 as originally planned, the Monday report said.

Israel is jointly developing Arrow 3 with the U.S. Department of Defense, with the latter shouldering the bulk of the project's financing.

The system, the most advanced of its kind in the world, is slated to become the upper tier of Israel's multi-tiered air- defense system, an ambitious concept that aims to provide a comprehensive shield against a multitude of rocket and missile threats.