More than 42 Lebanese were killed in a day of Israeli strikes, the deadliest a missile attack on a minibus as it was crossing a bridge south of Beirut, leaving at least 10 people dead.
Terrified foreigners and Lebanese are scrambling to find a way to leave a country under an air and sea blockade.
In Israel six people were injured, one seriously, when a Hezbollah rocket ploughed into a four-storey apartment building in Haifa, one day after eight railway workers were killed in the first rocket attack in the city.
Israel defiant
Israeli Prime Minister Ehud Olmert told an emotional parliamentary meeting that Israel was facing a "moment of truth" and vowed to continue the offensive against the "terrorists" of Hezbollah.
"We will fight with all the strength we are capable of. We will strike anyone who would strike at us and any terrorist infrastructure, until Hezbollah and (Palestinian militant group) Hamas cease attacking us," he said.
Israel's deputy chief of staff Major General Moshe Kaplinsky told AFP that the international pressure will "allow" the offensive to last "at least" another week.
Leaders gathered at the Group of Eight summit in Russia were involved in frantic efforts to contain the crisis, floating the idea of organising a substantial international force for Lebanon.
British Prime Minister Tony Blair said such a "stabilisation" force should be much larger than the 2,000-strong UN observer mission already deployed in south Lebanon.
"The mission will have to be far more specific and clearer, and the force employed will have to be far greater," he said. But Israel said it was "too early" to discuss such a possibility.
UN team
Meanwhile a special UN envoy leading a team seeking to negotiate a ceasefire between Israel and Hezbollah told reporters after talks in Beirut that there had been "some promising first efforts on the way forward."
"I must stress that these are first steps and much diplomatic work needs to be done," said Vijay Nambiar, who was to hold talks with Israeli Foreign Minister Tzipi Livni on Tuesday.
French Prime Minister Dominique de Villepin called for an immediate truce as he held talks in Beirut and the US State Department said Secretary of State Condoleezza Rice would also travel to the region.
But Hezbollah rejected any truce on terms dictated by Israel. "We accept no conditions for a ceasefire, whatever the pressure," Abdullah Kasir, a member of Hezbollah's central committee, told AFP.
Mr Olmert on Friday said a ceasefire would only be considered on three conditions: that Hezbollah release two captured Israeli soldiers, the firing of Hezbollah rockets on Israeli towns cease, and that the militia be disarmed in line with a UN resolution.
Death toll rising
Lebanese civilians have found themselves caught in the crossfire in a fierce flare-up of violence. The overall toll killed in Lebanon since last Wednesday reached 195, in addition to 12 soldiers.
Twenty-four Israelis have been killed since fighting began last Wednesday, including 12 civilians in a barrage of Hezbollah rocket fire across the border.
On Monday, rockets reached deep into Israel as far as the Arab towns of Afula and Nazareth.
"I appeal to the parties to focus their targets narrowly and to bear in mind that they have an obligation under international humanitarian law to spare civilian lives (and) to spare civilian infrastructure," UN Secretary General Kofi Annan said at the G8 summit.
The Israeli onslaught has left Lebanon virtually cut off from the outside world and much of its infrastructure in tatters, with jets hitting roads, bridges, power stations and the airport as well as Hezbollah strongholds.
It has also forced thousands of foreign residents to scramble to find a way out of the country and in the first mass evacuation by sea to neighbouring Cyprus, an Italian vessel carrying more than 300 people docked in the port of Larnaca.
It was to be followed by a ship chartered by the French government which left the Lebanese capital for Cyprus with some 1,250 evacuees on board.
Israel unleashed its military might on Lebanon after the capture of two soldiers in a Hezbollah attack that also killed eight soldiers, opening up another battleground after a similar offensive launched three weeks ago against Gaza where militants are holding a third soldier hostage.
In other diplomatic moves, Foreign Minister Manouchehr Mottaki of Iran, one of Hezbollah's main backers along with Syria, proposed a "ceasefire" and an exchange of prisoners between Israel and Arab militants.
Meanwhile, Israel also pressed on with its assault on Gaza, killing two Palestinians in new air raids and a ground incursion on Monday which also destroyed the foreign ministry.
At least 87 Palestinians and one Israeli have been killed since Israel sent troops back into the territory to try to free the captured soldier.