I lean towards the defensive systems not being engaged as has been reported today. It is extremely possible that the superstructure blocked the egagement envelope of the CIWS, but a slight turn by the captain would have opened that up.
I figure, if the radar was on, and that was all they had going for them to acquire, then they saw it when it came into their radar event horizon about 4-5 miles out, and that they had as many as 20 seconds between detection and impact.
Another possibility is that they turned the Phalanx system off because they didn't want it shooting up the Israeli gun/missile boats that it was escorting. The Phalanx system is pretty indiscriminate about what it'll hose down with shells - an incoming missile looks just like a speeding car, a speeding suicide/gunboat or an outgoing missile to it, and it will happily shoot up all of the above unless someone turns it off.
With the man-in-the-loop version, it can (apparently) get very annoying to keep having to tell the Phalanx, "No, do not shoot at the Admiral's car. No, do not shoot at our fellow ship. No, do not shoot down our friendly outbounds." Understandable (if stupid) for someone to just turn the thing off if you "know" there's nothing out there that will need the system. Remember, the Israelis don't have our Aegis systems or our data sharing net to allow the Phalanx to have better cueing and discrimination for targets.
The Ying-Ji-802 land attack and anti-ship cruise missile [Western designation SACCADE], is an improved version of the C-801 which employs a small turbojet engine in place of the original solid rocket engine. The weight of the subsonic (0.9 Mach) Yingji-802 is reduced from 815 kilograms to 715 kilograms, but its range is increased from 42 kilometers to 120 kilometers. The 165 kg. (363 lb.) warhead is just as powerful as the earlier version. Since the missile has a small radar reflectivity and is only about five to seven meters above the sea surface when it attacks the target, and since its guidance equipment has strong anti-jamming capability, target ships have a very low success rate in intercepting the missile. The hit probability of the Yingji-802 is estimated to be as high as 98 percent. The Yingji-802 can be launched from airplanes, ships, submarines and land-based vehicles, and is considered along with the US "Harpoon" as among the best anti-ship missiles of the present-day world.
http://www.fas.org/man/dod-101/sys/missile/row/c-802.htm