Named "Turning Point 5," an Israeli planned exercise involves testing nationwide siren systems and the cellular network, distributing emergency kits, improving coordination and practising evacuation and shelter procedures, the Israeli military said.
As part of the exercise, now in its fifth year, Israelis are being asked to enter their "pre-selected protected spaces" when they hear sirens sound on Wednesday.
The sirens will sound twice, once in the morning, once in the evening, to give citizens two opportunities to participate in the drill, the military said.
Among the scenarios being prepared for are sustained rocket attacks on the Tel Aviv region, the electrical grid or a geriatric hospital, local media reported.
Israel came under heavy rocket fire during its 2006 war with Lebanese militant group Hezbollah, and the country's southern towns near the Gaza Strip have also frequently been fired on from the Palestinian territory.
For the first time, lawmakers will also be called on to participate in response to a simulated attack on the parliament building in Jerusalem.
Some 80 municipalities will be taking part, along with the military, police, fire service and emergency services. The military's Home Front command will also test an emergency SMS service during the exercise, the army said.
Speaking on army radio on Sunday, Israel's home front defence minister Matan Vilnai cautioned that the exercise should not be seen as "undermining Israel's deterrent power."
"Our enemies know perfectly well that if they attack us, we will strike them with very tough blows, but we must prepare... because they have the capacity to fire missiles and rockets at all of our territory," he said.
According to Vilnai, gas masks have been distributed to 60 per cent of the population and the rest should receive the protection by next year.