The death of Adel Akkache and his family brings to 23 the number of dead since Israel began a land, sea, and air assault on Lebanon following the Wednesday morning abduction of two Israeli soldiers by the Shiite Hezbollah militia.
Israel’s Prime Minister Ehud Olmert has branded the kidnappings as an "act of war."
A total of eight Israeli soldiers have been killed in the ensuing fighting, along with a Hezbollah fighter.
Two Lebanese civilians were also killed in the worst border violence since Israel ended its 22-year occupation of southern Lebanon six years ago.
Gaza air strike
Earlier, on the southern front in Gaza an Israeli warplane dropped a bomb that destroyed the Palestinian Foreign Ministry building.
Witness said that the building collapsed and there was widespread destruction in the area.
The Palestinian foreign minister is Hamas leader Mahmoud Zahar.
Ten children, one of them just four months old, were injured in the raid, doctors at Gaza City's Al Shifa Hospital said.
The children lived in nearby homes which were badly damaged in the powerful blast, witnesses said.
The latest strike comes a day after similar Israeli sorties killed 23 Palestinians, including seven children from the same family, making it the deadliest day since the assault began two weeks ago.
US lays blame
The White House has held Syria and Iran responsible for the escalation in the crisis and world leaders have appealed for restraint.
There fears that the crisis first sparked by the capture of an Israeli soldier by Palestinians on June 25 could further escalate to encompass other Middle Eastern powers.
Mr Olmert insisted there would be no negotiations with "terrorists" and said he held the Beirut government fully responsible.
"This was an act of war without any provocation on the sovereign territory... of the state of Israel," Mr Olmert.
"Israel will react in a decisive way so that those responsible for the attack will pay a high and painful price," said Mr Olmert.
Israel has lodged a formal protest with the United Nations and the situation has left Mr Olmert facing the most serious test of his leadership since his government took office in May.
Hezbollah, whose militia was instrumental in forcing Israeli troops out of Lebanon in May 2000, demanded the release of Arab prisoners in return for the soldiers.
"They will only return home through indirect negotiations and an exchange of prisoners," Hezbollah chief Hassan Nasrallah said.
Nasrallah said the abduction was aimed at drawing international attention to the plight of "thousands of Lebanese, Palestinian and Arab detainees."
Retaliatory action
After an emergency meeting, the Israeli cabinet later gave the green light to unspecified retaliatory action against Lebanon, which has been mired in its own political crisis since the murder of ex-premier Rafiq Hariri in 2005.
The military has already called up a rapid-reaction force of 6,000 troops headed for Israel's northern border, but cabinet minister Yitzhak Herzog declined to elaborate on potential targets or the scope of any further action.
The Lebanese government, which includes a Hezbollah minister, denied any involvement.
Lebanon has demanded an urgent meeting of the UN Security Council and slamming what it called Israel's "aggressive" retaliation.
Yemen also called for an emergency meeting of the 22-member Arab League.
The White House, which considers Hezbollah a terrorist outfit, condemned the capture of the soldiers.
Washington pointed the finger at Israel's two main foes, Iran and Syria, which both bankroll the fundamentalist Shiite movement.
"We call for the immediate and unconditional release of the two soldiers. We also hold Syria and Iran, which directly support Hezbollah, responsible for this attack and for the ensuing violence," said national security spokesman Frederick Jones.
The US has also defended the offensive into Lebanon, the first since the 2000 pullout, saying Israel was entitled to defend itself against "terrorist" attacks.
UN chief Kofi Annan also called all sides to show restraint and to protect civilians, saying "maiming of unarmed civilians is terrorism pure and simple, whatever the cause."
Gaza offensive
Meanwhile the return of Israeli troops to Gaza 10 months after it ended a 38-year-occupation has already evoked painful memories of the army's disastrous full-scale invasion of Lebanon in 1982 where soldiers became bogged down in a deadly quagmire before finally leaving.
The flare-up on Israel’s northern border came shortly after Israeli tanks and troops pushed a new offensive in the Gaza Strip, killing 23 people.
Among the casualties were nine members of the same family killed in an air strike on the home of a Hamas leader.
Israel has launched waves of air strikes in Gaza in a bid to secure the release of 19-year-old Israeli corporal Gilad Shalit and stop rocket attacks on its territory by Palestinian militants.
Corporal Shalit was captured in an attack by three groups including the armed wing of the ruling Hamas and the ensuing offensive has caused a humanitarian crisis in Gaza.
The three groups have demanded the release of 1,000 Palestinian, Arab, Muslim and other prisoners but Israel has refused to negotiate.
The latest militant strike against Israeli soldiers was also likely to raise embarrassing questions about the state of Israel’s military, which considers itself one of the best in the world.