Eleven civilians were killed in two early morning Israeli bombing raids on southern Lebanon.
Seven people were killed and five wounded at dawn when Israeli fighter-bombers struck a house in Ghassaniyeh south of the port of Sidon, the main city in the region.
Moments later, Israeli warplanes struck a house in the village of Kfar Tebnit, east of Sidon, killing four civilians.
Israeli jets also staged raids in the nearby village of Haruf as well as the town of Nabatiyeh.
Hezbollah says it's killed four Israeli soldiers including an officer in a pre-dawn attack in south Lebanon.
The Shi'ite group says their fighters spotted a group of enemy elite forces entering a house near the village of Hula which they then attacked.
The clashes follow the deadliest single rocket attack since the Lebanon conflict began, after a barrage of Hezbollah missiles fell on the Israeli northern border town of Kfar Giladi and it's third largest city of Haifa.
Twelve soldiers were killed when the rockets his Kfar Giladi while three people were killed and 160 wounded in the attack on Haifa.
The rockets which killed the soldiers were fired from over the border in south Lebanon.
They hit an area near a kibbutz outside Kfar Giladi in the Galilee region.
All the victims were members of a reserve infantry unit who were camping close to the kibbutz. Five soldiers were also wounded, two of them seriously.
One building collapsed in the attack on Haifa and a second building was also hit by rockets.
Israeli television broadcast pictures of the collapsed building on fire with rescuers frantically trying to free survivors from the debris with their bare hands.
Ceasefire struggle
Meanwhile the UN Security Council has failed to agree on a draft resolution seeking to end the 27-day-old war between Lebanon and Israel.
Diplomats from the council's five permanent members - the US, China, Russia, Britain and France – are due to meet again after failing to agree whether to amend a draft a resolution to take account of Lebanon's concerns.
Lebanon has demanded a draft Security Council resolution drawn up by France and the United States include a call for a quick withdrawal of Israeli troops from its soil.
That prevented Paris and Washington from putting the draft into final form - a move that would have cleared the way for a vote on a Security Council resolution.
Lebanese officials said the existing draft, which does not demand an immediate ceasefire, can only lead to more conflict.
US Secretary of State Condoleezza Rice sought to ease Lebanese concerns.
"No one wants to see Israel permanently in Lebanon," she told reporters.
"Nobody wants to do that," Ms Rice said. "The Israelis don't want it, the Lebanese don't want it, so I think there is a basis here for moving forward."
But she admitted that the resolution was no quick fix for the conflict.
"We're trying to deal with a problem that has been festering and brewing in Lebanon now for years and years and years, and so it's not going to be solved by one resolution in the Security Council," she said.
"I would hope that you would see very early on an end to the kind of large-scale violence, large-scale military operations. But I can't say that you should rule out that there could be skirmishes of some kind for some time to come."
Threat of wider violence
Meanwhile Arab Foreign Ministers are gearing up for an emergency meeting in Beirut to discuss the war.
They are expected to back Lebanon's rejection the draft UN resolution on the basis that it doesn't require Israel to immediately withdraw its troops.
The meeting will be held amid signs that violence in the region could spiral even further out of control.
Syrian Foreign Minister Walid Muallem warned on his arrival in Beirut that Damascus was ready for regional war.
Israel has said it has no plans to attack Syria but analysts have expressed fears of a wider conflict after Israel recently bombed Lebanese border posts close to Syria.
Israel has accused Syria and Iran of "stoking instability in the region."
"Hezbollah is making an enormous effort to increase Israeli losses, with the support of Syria and Iran, because it fears the UN resolution which is on the horizon," said Israeli government spokesman Avi Pazner.