Two Israeli soldiers have been killed after Hezbollah fighters struck their military vehicle convoy with five Kornet anti-tank missiles in the Shebaa Farms near the Lebanese border.
The attack, which injured seven other Israel Defence Force (IDF) soldiers, was apparently conducted in retaliation for an alleged Israeli air strike that killed six Hezbollah fighters and an Iranian general in the Syrian sector of the Golan Heights on 18 January.
In a statement, Hezbollah said: "At 11:25 [Wednesday morning] the Qunaitra Martyrs unit targeted, with appropriate missile weapons, an Israeli military convoy comprising several vehicles and [transporting] Zionist officers and soldiers, causing the destruction of several vehicles and inflicting many casualties on the enemy."
Israel, which had increased surveillance and deployed Iron Dome batteries in anticipation of possible retaliation, immediately responded with artillery fire.
A Spanish UN peacekeeper serving in 10,000-strong UN Interim Force in Lebanon (UNIFIL) was also killed, while the number of Hezbollah casualties is unknown.
The UNIFIL said in a statement: "The precise cause of death is as yet undetermined and remains the subject of investigation."
Israeli Prime Minister Benjamin Netanyahu was quoted by The Jerusalem Post as saying: "Our only consideration is the security of the State of Israel and its citizens.
"Thus we have acted and thus we will continue to act. Those behind the attack today will pay the full price."
Israeli soldiers have now reportedly started searching for underground tunnels that Hezbollah may have dug near the Lebanese border.
An unnamed Israeli military official was quoted by Reuters as saying: "We are making checks on the ground following residents' concerns.
"We have no intelligence indicating Hezbollah has dug a tunnel, but anything is possible. It is the first time we are conducting a search on this scale."
Israel and Hezbollah fought a month-long war in 2006, which is believed to have killed between 1,191 and 1,300 Lebanese people and 165 Israeli soldiers.