"What is urgently needed is an immediate cessation of hostilities," Mr Annan said in a briefing of the UN Security Council on the ninth day of Israeli strikes on Lebanon.
"Both the deliberate targeting by Hezbollah of Israeli population centres with hundreds of indiscriminate weapons and Israel's disproportionate use of force and collective punishment of the Lebanese people must stop," he said.
However, Hezbollah chief Hassan Nasrallah has again told Al-Jazeera television that the two captured Israeli soldiers would only be freed in the "context of an exchange" of prisoners.
Meanwhile Mr Annan unveiled a settlement blueprint for the crisis that would involve the deployment of a stabilisation force, the disbanding of all militias including Hezbollah and the early release of two Israeli soldiers.
Mr Annan called for the following proposals to be carried out in parallel:
- Lebanese government authorities, under the auspices of the International Committee of the Red Cross with a view to their repatriation.
- An expanded peacekeeping force to be established on the Lebanese side of its border with Israel, working with the Beirut government to strengthen its army.
- A "mechanism" to be established of key regional and international figures to monitor and guarantee implementation of whatever agreement is reached.
- An international conference to delineate Lebanon's international borders with Syria and with Israel, including the disputed Shebaa Farms area.
- The conference would also focus on ways to help carry out Security Council resolutions calling for the disarming of militias operating on Lebanese soil and for the Lebanese government to extend its authority across all its territory.
Washington reluctant
US Ambassador to the UN, John Bolton said the US hoped for a stop to the war that has killed at least 310 people in Lebanon and 29 in Israel, but was not sure by what means it would be possible.
In addition, more than half a million people have been forced to abandon their homes, while thousands of foreigners are being urgently evacuated from Lebanon.
"What we seek is a long term cessation of hostilities that is part of a comprehensive change in the region and part of a real foundation for peace, but still no one has explained how you conduct a ceasefire with a group of terrorists," Mr Bolton.
Israeli Ambassador Dan Gillerman said that there can be no stop to hostile activities until Hezbollah is removed.
"For the first thing that must be addressed is the cessation of terror, before we even talk about cessation of hostilities. We will continue to do what we are continuing in Lebanon, not just to protect Israel and not just to bring our boys home, but to make sure that this cancerous growth in the heart of Lebanon is exiled," Mr Gillerman said.
Mr Annan is scheduled to have a private dinner with US Secretary of State Condoleezza Rice and meet with the European Union's foreign policy chief Javier Solana.
Washington has been resisting demands to urge Israel to end its attacks on the Gaza Strip and Lebanon and is pushing for a long-term solution that would ensure the disarming of Hezbollah.
The United States has support from Britain, where Prime Minister Tony Blair has broken with his European Union counterparts by refusing to call on Israel to halt its onslaught.
Mr Solana, speaking in Cairo, said the Security Council could reach a consensus on the Lebanon conflict and adopt a resolution next week, but suggested certain countries should "use their influence" to halt the hostilities.
"To achieve a ceasefire there has to be a political will," he said. "There are certain countries, groups who have responsibility. The sooner they use their influence the better."
Call for prayers
Pope Benedict XVI called for prayers "for an immediate ceasefire between the parties, the immediate installation of humanitarian corridors to allow aid to be brought to the suffering populations", the Vatican said.
The Russian foreign ministry, too, urged "an immediate halt to firing and bloodshed" and warned of a "humanitarian catastrophe" in Lebanon and the Palestinian territories.
Lebanese President Emile Lahoud demanded an immediate ceasefire to end what he described as the Israeli "massacre" of his country.
"After that we can talk," he told French radio. "We can discuss everything but first the fighting has to stop."
One of Israel's few allies in the Middle East, Turkey, renewed its call for an end to hostilities after an earlier appeal was shunned by Israel.
Prime Minister Recep Tayyip Erdogan again issued an appeal during telephone calls to Mr Annan and US President George W Bush.
Israel's Deputy Premier Shimon Peres had earlier said a cessation of hostilities could not work because Hamas and Hezbollah would never accept it.
Meanwhile, Egyptian Foreign Minister Ahmed Abul Gheit, visiting London, called on both Israel and Hezbollah to declare an immediate halt in hostilities to allow for diplomacy.
"The release of the soldiers is something that is understood but it has to be done in the context of an immediate ceasefire," he added after meeting his British counterpart Margaret Beckett.
Pakistani President Pervez Musharraf, too, appealed for a ceasefire, warning that the crisis could destabilise his own country where Islamic militancy continues to pose a threat.
The call for peace was echoed by Morocco's King Mohammed VI, who reiterated his support for "our Palestinian and Lebanese brothers", and called for an "immediate ceasefire".
Italy's Prime Minister Romano Prodi said his country would do all it could to aid a solution to the conflict between Israel and Hezbollah.