Lebanese guerrillas from the Hezbollah movement have bombarded an Israeli army post in the disputed border area.
Israeli forces responded by shelling the hills around two Lebanese villages. Initial reports say there have been Israeli casualties in the exchange.
Hezbollah fired Katyusha rockets and mortars at two Israeli outposts in the Shebaa Farms area and shelled another in Israeli-occupied Syrian territory.
It is the most serious outbreak of hostilities in the area for a month.
After the initial salvoes, Israeli warplanes bombed areas around the two villages, Kfarshuba and Shebaa.
Hezbollah fired about 20 rockets and mortars and the Israelis responded with about 50 shells, Lebanese security sources said. Four missiles were fired by the Israeli warplanes.
After the guerrillas opened fire black smoke could be seen rising from army posts in the mountainous zone.
The water-rich Shebaa Farms lie at the convergence of Israeli, Lebanese and Syrian territory.
They were captured by Israel from Syria in 1967 but the area is now claimed by Lebanon, with Syrian backing.
The United Nations has ruled that the area belongs to Syria and says its fate is linked to the occupied Golan Heights - which is subject to separate UN resolutions telling Israel to leave.
http://news.bbc.co.uk/1/hi/world/middle_east/4634647.stm