The vessel was intercepted "near Cyprus", the Israeli military said, though it gave no further details on where this took place.
The country's deputy defence minister, Matan Vilnai, said the ship's crew were not thought to have been aware of the smuggling operation.
A spokesperson for the military said there were "dozens of shipping containers, carrying numerous weapons, disguised as civilian cargo among hundreds of other containers on board".
The spokesperson added: "The weapons originate from Iran and were intended to reach the Hezbollah terror organisation for use against the state of Israel and its citizens."
The Associated Press news agency reported the vessel was operated by Cyprus-based shipping company United Feeder Services and the company had said the cargo was picked up in Damietta in Egypt.
Paul Wood, BBC News, Jerusalem
The seizure of the Francop is being celebrated by Israeli generals and politicians as a major success. The vessel, says the military, was carrying enough weapons to supply Hezbollah for a month or more of ground fighting.
The seizure comes after Israel carried out a joint military exercise with the Americans. The unspoken assumption of that exercise - for many in Israel at least - is that Israel will one day carry out military strikes against Iran's nuclear programme. Tehran will then hit back itself and also activate Hamas and Hezbollah.
Even if that sequence does not take place, Israeli military intelligence believes the "northern front" is the most likely place for the next fight. Syria denies weapons were on board - accusing Israel of an act of piracy - but the seizure is another sign of how impermanent is the peace in this part of the world; how all sides are looking ahead to, and preparing for, the next round of hostilities.
The exact route of the ship has not been confirmed but Israel's Haaretz newspaper said it originated in Iran and had docked in Yemen and Sudan before using the Suez Canal.
A United Feeder Services source told news agencies the ship was scheduled to dock in Lebanon.
The Israeli military said an Iranian document had been found on the ship.
A military spokesperson said: "All the cargo certificates are stamped at the ports of origin and this one was stamped at an Iranian port."
However, in a news conference in Tehran broadcast on Iran's state-run Press TV, visiting Syrian Foreign Minister Walid Muallem said the ship was not carrying Iranian-made weapons and that the cargo comprised Syrian exports to Iran.
Mr Netanyahu congratulated the army, navy and security forces on a successful action to prevent the supply of weapons.
Since Israel's offensive in Gaza last December and January, the Israeli navy and air force have been conducting intense searches in the Mediterranean and the Red Sea for ships smuggling weapons either to Hezbollah or to Hamas in Gaza.
In February Israel said a vessel detained off Cyprus was carrying Iranian weapons to Hamas in Gaza. Iran denied the claim.
In 2002 the Israeli navy captured the Karin-A, which was carrying some 50 tonnes of arms thought to be destined for Gaza.
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