A two-stage decision and control model for the operation of the power station in the Hazbani-Dan Water System (Israel) was developed and implemented. In this system, river water is stored and then either consumed by agricultural farms or released to a hydroelectric power station. Under management policy, agricultural consumption is taken as a constraint. The problem was solved via a two-stage procedure consisting of a long-term model (LTM) and a short-term model (STM). The LTM was presented by Rabinowitz et al. (1988). This paper reports on the development and analysis of the STM, in which operational flexibilities of the power station are taken into consideration, thereby improving the LTM solution. Our main contributions are aimed at: (1) describing the (nontraditional) systematic thinking process which transformed the mathematically expressed problem into an efficiently solvable model; (2) presenting the analysis of the model; and (3) reporting on a practical application of the model in a unique system.