How does the Iron Dome work?

First the radar, developed by Elta, scans the area for a ballistic motor or rocket.  When it detects action, it begins a process of information analysis and reporting that tracks the rocket's location and determines the type of rocket. This info is transferred to the command system, developed by mPrest, which processes and assesses the level of threat and the rocket’s projected destination.

If it's determined that the rocket will fall outside a protected area – meaning an area that decision makers have determined as high priority because of high population concentration or strategic importance – it won't be intercepted. But if it seems the rocket will fall inside said area, the decision to intercept will be made. For short range rockets, that decision will be a split-second one. Literally.

“From the moment the system detects the threat – a rocket that’s been launched – it detects the type of threat, whether it’s a Fajr or Qassam rocket or something else, and estimates its trajectory,”
How does the Iron Dome work? - Israel News | Haaretz Daily Newspaper