Israeli troops entered Lebanon on Wednesday after the militant group Hezbollah captured two Israeli soldiers in intensifying cross-border violence.
Israel's defence ministry confirmed that the soldiers had been captured in a cross-border raid at approximately 9 a.m. local time, and said that the Lebanese government would be held responsible.
Hezbollah released a statement saying the soldiers had been "transferred to a safe place," but offering no information about their condition.
Hezbollah leader Sheik Hassan Nasrallah said the captured soldiers would be released only as part of swap of prisoners currently held in Israeli jails.
UN Secretary General Kofi Annan called for the immediate release of the Israeli soldiers and condemned Israel's retaliation in southern Lebanon.
Israel struck roads and bridges in southern Lebanon in an apparent attempt to block escape routes, and sent ground troops across the border to search for the abducted soldiers, government officials said.
Prime Minister Ehud Olmert, welcoming Japanese Prime Minister Junichiro Koizumi at an event in northern Israel, told reporters there would be a response.
"These are difficult days for the state of Israel and its citizens," Olmert said.
"There are elements in the north and in the south who are threatening our stability and are trying to test our resolve. They will fail, and pay a heavy price for their actions."
Olmert later called the attack on Israel's northern border "an act of war."
The abduction followed a rocket exchange along the border. At least two rockets fired from south Lebanon exploded near the Israeli town of Shlomi.
As many as seven Israeli soldiers were killed and another eight wounded in the cross-border attacks, according to a report on Al-Jazeera television.
The Israeli military confirmed that three of its soldiers were killed in the same raid in which the two missing soldiers were captured, and that four others were killed when their tank went over a land mine in southern Lebanon.
In the first official U.S. response to the outbreak on the Israel-Lebanon border, Secretary of State Condoleezza Rice issued a statement calling for restraint and urging Syria "to use its influence to support a positive outcome."
6 killed in Gaza attack
Earlier, Israel had stepped up its pressure on Palestinian militants holding a soldier in Gaza, and an Israeli plane bombed a home in an attempt to kill Hamas bomb maker Mohammad Deif.
The 225-kg bomb levelled a residential building at about 2:30 a.m. local time, as Israel launched an offensive in the central Gaza Strip.
Israel has already come under international criticism for its response to the June 25 abduction of Cpl. Gilad Shalit.
The overnight bombing killed at least six people, but not the intended target.
Israel said it had wounded Deif, who has been on Israel's most wanted list for several years. Hamas denied Deif was in the building.
It is believed to be at least the fourth attempt on Deif's life by the Israeli military.
Hamas militants have indicated they would be willing to negotiate Shalit's handover in exchange for the release of Palestinian prisoners in Israeli jails, something which Olmert has repeatedly refused.
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Israeli troops entered Lebanon on Wednesday after the militant group Hezbollah captured two Israeli soldiers in intensifying cross-border violence.
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