Israeli troops and Hezbollah guerrillas engaged in heavy fighting Wednesday in the key Lebanese border town of Bint Jbail.
Arabic media report Hezbollah killed at least 12 Israeli soldiers as they tried to take the Hezbollah stronghold. Israeli officials say several soldiers were wounded, but have not confirmed any deaths.
Israeli forces have been trying for days to capture the town and say they sealed it off Tuesday.
Meanwhile, Israeli warplanes pounded more targets across southern Lebanon.
Israeli officials say Prime Minister Ehud Olmert wants to create a two kilometer security zone in southern Lebanon to keep Hezbollah away from the border.
Mr. Olmert has also expressed "deep regret" for an Israeli airstrike that killed four U.N. peacekeepers Tuesday. U.N. Secretary-General Kofi Annan said the observation post was clearly marked and came under Israeli fire for several hours.
The White House called the deaths horrible, and says there is no reason to suggest Israel deliberately targeted the U.N. observers.
An Israeli Foreign Ministry spokesman says it would make no sense for Israel to deliberately target U.N. observers.
Israeli officials described Tuesday's bombing as a "fatal mistake."
In another development, Hezbollah leader Hassan Nasrallah says his guerrillas are ready to fire rockets that will reach farther into Israeli territory, beyond the northern city of Haifa.
Hezbollah has fired more than 1,000 rockets into northern Israel since the fighting broke out two weeks ago. Several missiles exploded in or near Haifa, about 40 kilometers from the Lebanese border. Israel believes that Hezbollah may have even longer-range weapons, capable of reaching Tel Aviv.
Some information for this report was provided by AFP, AP and Reuters.