The ship destined for Gaza was seized yesterday.
Elite Naval troops from the Shayetet 13 unit boarded the ship in open waters on the maritime border of Sudan and Eritrea, some 1,500 km south of Israel, the IDF said.
The Klos C Iranian vessel was sailing under a Panamanian flag, making its way to Sudan from Iran carrying a cargo of advanced rockets capable of reaching distances of up to 200 km, it said.
The 17 crew members from diverse nationalities are said to be undergoing investigations for their involvement in the attempted smuggling operation.
The Israeli army claimed that a large supply of rockets, including the Iranian-made 302m, which hit Haifa during the 2006 Second Lebanon War, was found on the ship.
The rockets are said to have originated in Syria where the IDF claims that Iran has large arsenals.
The rockets were flown from Syria to Iran, where they were loaded on the ship that then departed for Iraq where the arms were concealed in boxes of cement, local media reports said.
The Israeli army claimed that it was closely tracking the ships movement.
"There is clear evidence from the ship that these are rockets for which Iran is responsible," a senior IDF source was quoted by Ynet as saying.
"The rockets were...Intended for terror groups in Gaza," he reportedly said.
The interception operation was conducted under the real-time supervision of IDF Chief of Staff Benny Gantz and Defence Minister Moshe Ya'alon, both of whom were present at an IDF command centre, reports here said.
"This is a new Israeli lie aimed to justify and prolong the blockade of Gaza," said Taher Al-Nono, an adviser to Hamas' Prime Minister Ismail Haniyeh.
Israel has long claimed that Iran is transferring arms to terror groups around the world, namely Hezbollah in Lebanon and Hamas in the Gaza Strip, through Sudan and Yemen.
In a major operation Israel had claimed to have captured tonnes of ammunitions onboard Karine-A ship in 2002 which Jerusalem said was en route to Gaza from Iran.
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