The Pentagon said Lockheed had made key improvements in its Theatre High-Altitude Area Defense missile, hitting target rockets twice in succession over New Mexico, and that approval of the engineering, manufacturing and development phase for THAAD could come next year.

It was a major step forward for the U.S. missile defense program and Lockheed's troubled anti-missile missile, which had suffered six successive test failures before hitting test rockets in flight both in June and again this month.

The Congressional General Accounting Office has estimated that Lockheed could be awarded more than than $4 billion in contracts if it is authorized to proceed with THAAD's engineering, manufacturing and development phase. A series of up to 40 flight tests would be part of that phase and would not start until at least the year 2002.

Undersecretary of Defense Jacques Gansler said in a letter to the House of Representatives Armed Services Committee on Thursday that the Pentagon had decided to drop its demand that Lockheed conduct three successful flight tests in succession before going to the so-called ``EMD'' phase of THAAD.

But Gansler and Army Maj. Gen. Peter Franklin, deputy director of the military's Ballistic Missile Defense Organization, stressed that key milestones such as an independent cost analysis of THAAD would still have to be met before a final decision on further development.