Hezbollah leader, Sayyed Hassan Nasrallah, has said his group would target Tel Aviv if Israel attacked central Beirut.
In a televised speech he said rocket attacks would cease if Israel halted its bombing campaign in Lebanon.
Israel promised to destroy Lebanon's infrastructure in response.
Despite 23 days of intensive Israeli air and ground attacks, Hezbollah militants continue to launch rockets and battle Israeli troops on the ground in Lebanon.
Israel today resumed its bombardment of the southern suburbs of the Lebanese capital, Beirut, after a lull of several days.
The Israeli military said its aircraft hit at least 70 suspected Hezbollah positions in the capital and southern Lebanon.
Air strikes also took place in the eastern Bekaa Valley and on roads near the Syrian border with heavy shelling around the southern towns of Nabatiyeh and Blat.
Israel is continuing the expansion of its ground offensive in southern Lebanon, where some 10,000 troops are taking on Hezbollah fighters.
Meanwhile, seven Israeli civilians have been killed in Hezbollah rocket attacks on northern Israel.
Three died when a rocket hit the town of Maalot and a further four died in the coastal city of Acre.
Over 70 such rockets have hit Israel today, with at least four striking populated areas.
The Israeli army has also confirmed that two of its soldiers were killed in clashes near the Lebanese town of Aita al-Shaab. The area has seen intense fighting over the past few days.
Meanwhile the Lebanese Prime Minister, Fuad Siniora, has said Israel's offensive has killed 900 people and wounded 3,000.
Mr Siniora that one third of the casualties in the conflict were aged under 12 and that one million people had been displaced.
He made the comments during a video address to a meeting of the Organisation of the Islamic Conference in Malaysia.
HRW highlights 'war crimes' in Lebanon
The New York-based group, Human Rights Watch, has said Israel appears to have deliberately bombed civilians in Lebanon and said that some of its strikes were war crimes.
In a report published today, it said Israel's contention that Hezbollah militants were hiding among civilians did not justify its failure to distinguish between civilians and combatants.
Peter Brouquet of Human Rights Watch said Israel was not observing one of the most basic rules of war.
The group also questioned the death toll from the Israeli air strike on Qana given by the Lebanese government and the Lebanese Red Cross, saying that 28 civilians were killed in the raid.
However, both the Lebanese government and the Lebanese Red Cross said they had confirmed 57 deaths and they stood by this figure.
An Israeli inquiry into the attack said the army believed the building was being used as a hiding place for Hezbollah and would not have attacked if it had known civilians were in the building.
Amnesty International said the probe was inadequate and warned that any investigation into the events in Qana could not be allowed to be 'a whitewash'.
Sunday's early morning air strike on the village of Qana drew international outrage and intensified calls for a ceasefire.
