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.
Hizbollah 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.
Olmert calls situation grave
Hezbollah militants have fired more than 2,700 missiles at northern Israel since the start of the conflict on July 12, causing about a quarter of a million people to flee south out of rocket range.
Israeli Prime Minister Ehud Olmert, who was chairing the weekly cabinet meeting at the time of the attack on Kfar Giladi, called the incident "very grave" and vowed that "we will continue fighting as long as is necessary".
The latest deaths bring to 58 the number of soldiers who have been killed since Israel began its offensive. Most have died in combat.
Thirty-six Israeli civilians have been killed in rocket attacks since the start of the Lebanon offensive.
Israel has also accused Iran of "stoking instability in the region" and slammed Syria after the barrage.
"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," government spokesman Avi
Pazner said.
"Iran, through its proxy Hezbollah, is continuing to stoke instability in the region," Mr Pazner added, noting that Sunday had been a "very hard day for Israel."
Burning cars
Witnesses said the rockets had slammed into the Kfar Giladi area in quick succession.
"A rocket landed right between those cars," said a soldier at the scene as he pointed to the burnt-out remains of vehicles.
"It's carnage," said another soldier as his colleagues scoured the ground for body parts.
Military ambulances quickly arrived on the scene after the first rockets struck and were removing the dead and wounded as more missiles fell.
Israeli television showed footage of the wounded being carried on stretchers by soldiers for evacuation by military helicopter.
The bodies of those killed were covered with sheets and laid out alongside each other near the kibbutz cemetery.
Fires caused by the rockets blazed in nearby fields as ambulances with sirens blaring came and went from the area.
Last week, Mr Olmert assured the nation that the offensive against Hezbollah in Lebanon had significantly weakened the group.
But the Shiite militia, which was created after Israel's 1982 invasion of Lebanon, has continued to fire deadly salvos into the Jewish state.
Almost 1,000 Lebanese have been killed, the vast majority of them civilians, and more than 3,000 wounded. An estimated 915,000 have been forced out of their homes.
Israel had dropped leaflets over the south on Saturday, warning it would bombard Hezbollah positions, especially in the main southern city of Sidon, which has been swelled by an influx of Lebanese trying to flee the conflict.