Hello Mohammad
If the destination address is not directly connected, then a recursive lookup occurs. That means the destination address is looked up in the routing table again, and if a route for that address is found, the appropriate exit interface is used.
Now, if there is no route to that destination address, then indeed proxy ARP is used to discover it. Remember proxy ARP is enabled by default on most Cisco platforms. You can learn more about this feature here:
I hope this has been helpful!
Laz