Hezbollah rockets blasted Israeli army outposts and Israel's warplanes and shells hit guerrilla targets in a sharp escalation of violence linked to political upheaval in Lebanon.
The fighting on Monday was the first major cross-border conflict in five months and the heaviest between the two sides in more than three years.
Witnesses in southern Lebanon said heavy exchanges lasted for two hours in the evening and continued intermittently into the night as Hezbollah guerrillas fired truck-mounted rockets at Israeli army positions. Israeli warplanes launched an airstrike late Monday night, Lebanese security officials reported.
Hezbollah guerrillas blamed Israel but the Jewish state said Hezbollah attacked first and with the backing of supporters in Syria and Iran.
Four guerrillas were killed and several Israeli soldiers wounded, according to accounts from both sides.
The US, which considers Hezbollah a terrorist organization, condemned the guerrilla rocket attacks but also urged Israel to exercise restraint in its response.
Hezbollah, the powerful Shiite Muslim militant group in control of the Lebanese side of the border with Israel, is an ally of Syria in Lebanon. In recent weeks it has stepped up its criticism of the UN and its investigation into the killing of former Lebanese prime minister Rafik Hariri.
Syrian President Bashar Assad earlier this month attacked the probe -- which implicated Syrian officials in the February murder -- as politicized.
An escalation of tension in southern Lebanon would streng-then Syria's hand with the UN by focusing attention on the need for a stable Syria as a key to peace in Lebanon, where it kept a large military force for nearly three decades.
Israel hinted Monday that it was prepared for additional retaliation, which could further erode the security situation.
"Israel will do all possible to protect its residents in the north," Israeli Defense Minister Shaul Mofaz told a news conference.
He blamed Syria and Iran for the attacks, saying they were designed to ease international pressure on Damascus.
"Behind the fire in the north stand also Syrian and Iranian interests to ignite the northern border and turn the attention from Syria, which today is under heavy international pressure," Mofaz said.
Lebanese Prime Minister Fuad Saniora spoke with the leadership of Hezbollah and the US, French and Russian ambassadors in an attempt to defuse the tensions in southern Lebanon.
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