Radar guided via eletro optic signal, they don't know much but the ground does. The whole point is the missile is very cheap for a missile and all the fun stuff is ground based inside of the protective sphere of influence.
The Iron Dome works wonders for intercepting dumb rockets which are on a calculable set trajectory. They are not guided with electro-optic but using a simple signal to tell the rocket where to be at what time. Dumb rockets are much, much cheaper to produce than guided missiles.
Iron Dome's fatal flaw is when a projectile does not follow the path of the image above but changes trajectory mid-air. E.G another guided missile. It is designed to stop Hamas style fire-and-forget rockets. It cannot deal with projectiles rapidly changing trajectory.