Israeli occupation forces killed three Hezbollah fighters during fierce cross-border fighting in the disputed Shebaa Farms area, BBC reported.
Police on the Lebanese side of the border said the clashes erupted at 3:00 pm (1300 GMT) Monday and lasted for about two hours.
The fighting broke out when Hezbollah fighters launched a major assault on Israeli army posts, triggering retaliatory Israeli air strikes.
Witnesses reported at least 250 powerful explosions.
“These clashes caused the death of three resistance mujahedeen (fighters), a Hezbollah statement said, accusing Israeli forces of violating Lebanese territory.
Israeli sources said at least five Israelis were wounded, and that residents on the Israeli side of the border were urged to take refuge in bomb shelters.
"Following attack by Hezbollah, the air force attacked a command post and a number of access routes in southern Lebanon," an army spokesman said, according to AFP.
Monday’s fighting was the heaviest in the Shebaa Farms since 2000, when Israeli forces left south Lebanon.
The violence comes on the eve of Lebanon’s independence day and amid a political crisis in Israel following Prime Minister Ariel Sharon’s resignation from the ruling Likud party.
Airspace violations
Hezbollah's Al-Manar television said nine Israeli army vehicles, including a tank, were struck, and an Israeli position destroyed, while Lebanese police said Hezbollah fired as many as 300 shells in the space of an hour in the disputed border region.
Israeli army sources said Hezbollah missiles landed in Kiryat Shmona and Metula, with at least one projectile fired into the area of Kibbutz Snir.
Following the attacks, Israeli warplanes overflew in southern Lebanon, in defiance of repeated calls by the United Nations to end airspace violations.
Reports say Israeli jets fired missiles on three suspected Hezbollah positions; the outskirts of Ghajar, south of the village of Khiam, and southeast of the port city of Tyre.
Israeli TV said Hezbollah’s bombardment was aimed at diverting the attention from a raid on the Druze village of Ghajar to seize Israeli soldiers.
The majority of Ghajar residents have taken Israeli nationality after Israel seized the Golan Heights from Syria in 1967.
The attacks came two weeks after Israeli artillery batteries opened fire in the disputed area.
The water-rich Shebaa Farms area is located at the convergence of Lebanon and Syria and the Israeli-occupied Golan Heights. The border region was seized by Israel from Syria in 1967.
While the United Nations says that Israel's withdrawal from Lebanon is complete and that the Shebaa Farms is Israeli-occupied Syrian land, Lebanon and Syria insist that the area is still occupied Lebanese soil.
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