The boy was arrested on the day before Anzac Day, just hours after police allegedly intercepted him sending encrypted messages via a social networking app saying he wanted to get a firearm and a bomb-making manual.

During a bail application on Monday, his father wept as he promised he would monitor his son 24/7 and said he thought he was doing the right thing by giving the boy, an apprentice electrician, privacy and space to spend time alone in his bedroom at night.

The alleged messages were sent on five nights between April 16 and 24 to an undercover officer posing as an overseas extremist, according to police documents tendered in Parramatta Children's Court on Monday.

In one message, the boy, who had been on the police radar for a year, was asked why he wanted to do something on April 25.

"Because here in Australia the kuffar [non-believers] celebrate Anzac Day and I want to terrorise them on that day," he allegedly replied.

In another, he allegedly said: "I want to learn how to make a bomb".

When asked what kind of mechanical knowledge he had, he replied: "I am an electronic apprentice."

Police also allegedly watched the boy leave his home for a meeting, arranged via message, to obtain a firearm however the meeting didn't happen for unknown reasons, the court heard.

"The online communications indicate a sense of urgency in [the] behaviour of the young person," Commonwealth prosecutor Chris Choi told the court.

The family's Auburn home was raided at 3pm on April 24 and police allegedly seized phones and computers containing an Islamic State recruitment video featuring beheadings and issues of Islamic State's official magazine Dabiq, Ms Choi said.

In opposing bail, Ms Choi said the boy had come to the attention of counter-terrorism authorities last May because he was allegedly chatting to Islamic State members online. He was put in a deradicalisation program in November that had clearly "failed".

"He now has a greater urgency to do what he failed to do on Anzac Day," she said.

The boy's lawyer, Zemarai Khatiz, said a psychologist has advised that he would suffer irreversible psychological damage if kept in custody until trial.

He proposed putting the boy under virtual house arrest with no internet or phone and said the family would give up their $1.2 million home if bail conditions were breached.

The boy, who cannot be named for legal reasons, appeared via video link with a closely shaven beard and wiped his eyes as his father, mother, older sister and uncle cried throughout the hearing.

The father gave an interview to the Australian newspaper last year praising the National Disruption Group, a federal program that devises tailored plans to deradicalise violent extremists.

He told the newspaper that he was happy with his son's progress after being given a gym membership, starting the apprenticeship, going to English sermons at the mosque and having frequent visits from case manager, Detective Sergeant Alex Sarkis, the NSW Police's Countering Violent Extremism co-ordination.

However, he appeared to backtrack on Monday, giving evidence to the court that he thought it was an extra-curricular program to help his son go to the gym.

He denied any knowledge of it being a deradicalisation program and said Mr Sarkis only had "general chit-chats" with him about "the youth of today" and "some radical stuff".

He promised to place all electronics in a safe and to move the boy's bed into the parents' room so he could be monitored 24/7.

Magistrate Christine Haskett said his ability to monitor his son was questionable given they had no idea about his alleged online communications.

She said the killing of police accountant Curtis Cheng at the hands of a 15-year-old showed that "anything can happen" if a person gets their hands on a gun.

She will hand down her bail decision on Thursday.