During talks with Israeli Prime Minister Ehud Olmert, Mr Annan pressed for a lifting of the six-week air and sea blockade, which was imposed after the war against Lebanon's Hezbollah guerrilla group began on July 12.
"It is important not only because of the economic effect it is having on the country but it is also important to strengthen the democratic government of Lebanon with which Israel has repeatedly said it had no problems," Mr Annan said.
Referring to Israeli statements that the blockade was being kept in place to prevent Hezbollah from receiving more arms, Mr Annan said: "I think we need to be able to take care of the concerns of Israel."
"I understand the issue of rearmament and we need to make sure that arms do not come in either through airport, or the borders or through the sea port."
"In the meantime I do believe the blockade should be lifted," he said.
Olmert rebuffs Annan
But Mr Olmert rebuffed Mr Annan, later telling reporters that any relaxation of pressure on Lebanon's ports and airspace depended on the full implementation of UN resolution 1701, which governs the ceasefire with Hezbollah.
Referring to Mr Annan's previous comments that the resolution was a "fixed menu" and not a buffet, he said: " As far as we are concerned we entirely accept that it a fixed buffet and everything will be implemented, including the lifting of the blockade, as part of the entire implementation of the different articles”.
Mr Olmert was equally firm when it came to suggestions from Mr Annan that Israel should withdraw all its troops from southern Lebanon within "days or weeks", once up to 5,000 UN-backed peacekeepers are on the ground.
"Israel will pull out of Lebanon once the resolution is implemented," Mr Olmert said, indicating a longer timeline.
Israeli Defence Minister Amir Peretz yesterday said Israel would pull out thousands of troops that remain in southern Lebanon once a "reasonable" number of UN soldiers had deployed but did not give a figure.
Mr Annan said he hoped soon to double to 5,000 the number of UN troops in Lebanon and urged Israel and Hezbollah to end swiftly all disputes blocking a lasting ceasefire.
Resolution 1701 calls for a deployment of 15,000 UN peacekeepers by November 4, alongside Lebanese army troops.
Mr Annan, in Jerusalem after visiting Lebanon, is trying to strengthen a shaky, two-week-old truce that ended a 34-day war between Israel and Hezbollah. His top priority had been the lifting of the blockade.
Abducted soldiers
Mr Annan also called for the unconditional release of two Israeli soldiers whose capture by Hezbollah guerrillas in July sparked the month-long Lebanon war.
Mr Annan said he believed the two servicemen, who were captured by Hezbollah in July 12 cross-border raids that left eight other soldiers dead and sparked Israel's month-long offensive in its northern neighbor, were still alive.
"I am not in a position to confirm that information," he said, adding “I did discuss this issue in Lebanon at the highest levels" during the first leg of his Middle East tour earlier in the week.
"I am going to do all I can to work to get their release. I did not get the impression that they were not alive. I believe they are alive."
US civil rights leader Jesse Jackson, on a visit to the region to try to mediate a prisoner exchange, told Israeli Army Radio he had been informed by a Hezbollah leader that the two soldiers were alive.
Mr Annan met with the families of the missing soldiers, as well as one serviceman who was seized by Gaza militants in late June, on Tuesday night.
On a visit to devastated southern Lebanon yesterday, he said "serious irritants" to the truce were also the fate of the abducted soldiers and that of Lebanese prisoners held in Israel.
Mr Annan will also hold talks with Foreign Minister Tzipi Livni before travelling to the West Bank to meet Palestinian President Mahmoud Abbas.
Aides to Mr Annan have said he will also travel to Syria and Iran, Hezbollah's main backers, later in the week.
Direct contact with Lebanon
During the joint press conference, Mr Olmert also said that he hoped conditions would allow for direct contacts between the governments of Israel and Lebanon soon.
"I would like to emphasise that the people of Israel have no conflict with the government of Lebanon," Mr Olmert said.
"And we certainly hope the conditions will change rapidly in order to allow direct contact between the government of Israel and the government of Lebanon in order to hopefully soon reach an agreement between the two countries," he said.
There have been no diplomatic relations between Israel and Lebanon since the creation of the Jewish state in 1948.
Five Palestinians killed
Hospital officials said five Palestinians had been killed by Israeli tank fire in the Gaza Strip.
They said four Palestinians were killed in tank shelling of the Shejaiya neighbourhood of Gaza City, where the Israeli army has been conducting operations aimed at militants since Saturday night.
According to witness reports to AFP, all four were civilians, but an Israeli army spokesman said the tanks fired after "armed men approached troops operating in Shejaiya."
In northern Gaza, a 24-year-old mentally handicapped man was killed overnight by Israeli fire after he approached the border with Israel, hospital officials said.
Italian troops leave Rome
Italy's first contingent of 800 troops, out of an eventual 3,000 pledged, have set sail on what Rome said would be a "long and risky" mission.
The aircraft carrier Garibaldi and four other naval ships were due to reach Lebanon by Friday.
France promised to send a 900-strong battalion before the middle of September, with a second battalion to follow.
The United Nations hopes to create a buffer zone in south Lebanon free of Israeli or Hezbollah forces and policed by the expanded UN force alongside some 15,000 Lebanese troops.