Israeli President Shimon Peres has said the anti-government protests sweeping the Arab world that have toppled the leaders of Tunisia and Egypt are an "opportunity for peace" in the Middle East.

"We believe that the biggest guarantee of peace is having democracy in our neighbors. We are happy to witness this democratic revolution which is taking place in the Arab world," he said in an address to the Spanish parliament on Tuesday.

Israel put its navy on high alert and said it would respond immediately to any "provocation" as two Iranian warships sailed through the Suez Canal into the Mediterranean on Tuesday.

The Iranian vessels entered the southeastern Mediterranean after going up the canal for the first time since the 1979 Islamic Revolution, reportedly en route for Syria, in a move taking them past Israeli territorial waters.

Israel and the United States on Tuesday carried out a successful test of the Arrow anti-missile system, intercepting a test ballistic missile, the Israeli defense ministry said.

The Arrow system "successfully detected and tracked the target and transferred information to the Citron Tree battle management control system," the statement said.

Israeli President Shimon Peres has said Iranian President Mahmoud Ahmadinejad and Hizbullah leader Sayyed Hassan Nasrallah would be overthrown by their own people.

Peres made the remark on Monday at the headquarters of the Jewish community in Spain.

Tehran could activate Hizbullah fighters to attack Israel in an effort to stave off domestic pressure within Iran, according to assessments in the Israeli army’s Northern Command.

“The concern within the army is that if the regime in Tehran feels under pressure due to anti-government demonstrations, it will try to initiate an attack on an Israeli target – either overseas or near the border – to divert attention from its own troubles,” said The Jerusalem Post newspaper on Monday.

Around 3,000 Palestinians gathered in the West Bank on Sunday to protest against the U.S. veto that nixed a Security Council resolution on Israeli settlements.

The crowd massed in Ramallah's Manara Square, a central roundabout in the West Bank city, waving banners and shouting slogans against the American administration.

Israel's prime minister on Sunday accused Iran of trying to exploit the recent instability in Egypt by sending two warships through the Suez Canal into the Mediterranean, saying he views the move "with gravity."

The Iranian ships were expected to make a rare crossing through the canal on Sunday or Monday en route to Syria — an Iranian ally and Israel's enemy to the north. Egypt confirmed the ships would be allowed through the strategic passage.

The Israeli navy is to present a plan for the defense of offshore gas fields that hold the prospect of greatly reducing the Jewish state's energy dependency, the mass-selling Yediot Aharonot newspaper reported Sunday.

Citing a senior military official, the newspaper said that the plan, which will require government approval, will have an initial price-tag of $40-70 million and will be presented at the end of the month.

Israeli deputy Prime Minister Silvan Shalom threatened on Friday Hizbullah Secretary General Sayyed Hassan Nasrallah by saying: “We are not keen on battle, but if it is imposed on us, them we will return you Nasrallah to the underground hideout where you will stay for years.”

“The Galilee is prospering and we are spending money on it for it to prosper,” he stated.

Israeli missions in Turkey have stopped working while security measures are implemented in response to threats by Hizbullah, an Israeli diplomatic source said Friday.

"Officially, we are not closed, but practically we are not functioning... because of security problems," the source told Agence France Presse.