Lebanon's Hizbollah fighters killed two Israeli soldiers and lost one of their own fighters in border clashes on Tuesday, a day after the group accused Israel of killing a top Hizbollah member.
Witnesses said Israeli helicopter gunships and tanks fired on at least two Hizbollah positions. Artillery fire boomed as the helicopters hovered overhead.
The Israeli army said two of its soldiers were killed by Hizbollah fire while repairing equipment on the roof of their post. Hizbollah said one of its guerrillas died but gave no details.
The fighting was the most serious since May, when Hizbollah killed an Israeli soldier and wounded five others in a disputed area elsewhere on the border.
On Monday, a bomb in Beirut killed a senior Hizbollah member, Ghalib Awali. Hizbollah accused Israel, which assassinated Hizbollah leader Abbas al-Mussawi in 1992, of carrying out the attack. Israel declined comment.
There were conflicting accounts of Tuesday's clash. Iranian and Syrian-backed Hizbollah said it began when Israeli forces shelled its positions by the town of Eita al-Shaab.
Israel said Hizbollah had started the fighting and that the Israeli army would continue to operate against any party "involved in terrorism against Israeli citizens".
"This was a premeditated sniper attack on one of the outposts," Israeli army spokesman Captain Jacob Dallal told Reuters. "We responded with fire toward the Hizbollah position."
Hizbollah played a key role in forcing Israel to end its 22-year occupation of southern Lebanon in May 2000. Hizbollah guerrillas took up positions on the border after the Israeli withdrawal and fighting has flared sporadically since then.