SHEAR YASHUV, Israel -- The Lebanese militant Hezbollah fired a salvo of missiles at an Israeli military convoy in a disputed border area Wednesday, killing two soldiers and triggering a deadly response that marked the most serious escalation since the sides' 2006 war.

The flare-up, which also left a U.N. peacekeeper dead and seven soldiers wounded, adds to the regional chaos brought on by neighbouring Syria's civil war. Hezbollah indicated the attack was in retaliation for a deadly Israeli strike on its fighters inside Syria earlier this month.

The violence sparked fears in both countries of yet another crippling war between the two foes. Israel's Prime Minister Benjamin Netanyahu warned Israel would respond "forcefully," and the military fired artillery shell barrages that struck border villages in southern Lebanon. Hezbollah responded with rocket fire on Israeli military positions in an exchange of fire that lasted for hours.

The Israeli military said five anti-tank missiles hit the soldiers as they were travelling near Mount Dov and Chebaa Farms, along a disputed tract of land where the borders of Israel, Lebanon and Syria meet.

The soldiers were in two unarmored white vehicles without military insignia when they were struck from a distance of about three miles (five kilometres) away, according to Lt. Col. Peter Lerner, an Israeli military spokesman.

Israeli media aired footage showing the charred, smouldering vehicles after the strike.

The dead soldiers were identified as Capt. Yochai Kalangel, 25, and Sgt. Dor Chaim Nini, 20. Seven other soldiers were wounded, the military said.

In Washington, State Department spokeswoman Jen Psaki condemned the Hezbollah attack and expressed support for Israel's "legitimate right to self-defence."

Hezbollah said the operation was carried out by a group calling itself the "Righteous Martyrs of Quneitra," suggesting it was to avenge an Israeli airstrike in the Syrian portion of the Golan Heights on Jan. 18 that killed six Hezbollah fighters, including the son of the group's slain military commander, Imad Mughniyeh, and an Iranian general.

Israel has braced for a response to that strike, beefing up its air defences and increasing surveillance along its northern frontier.

"Whoever stands behind today's attack will pay the price in full," a statement from Netanyahu's office quoted him as saying. Netanyahu said that Iran, through Hezbollah, was working to establish a base in southern Syria from which to launch attacks against Israel. "We are working resolutely and responsibly against this attempt," he said.

He said Syrian President Bashar Assad and the Lebanese government shared the blame for attacks against Israel emanating from their territory.

Despite the strong words, however, the Israeli premier is unlikely to want to get mired in a messy and costly conflagration ahead of his re-election bid on March 17, with Israelis weary following a year that brought both the 50-day Gaza war and a spike in deadly attacks by Palestinians.

Still, he may want to show voters that he has stood up to Hezbollah and restored the deterrence forged after the 2006 war.

About an hour after the initial attack, mortars were fired at several Israeli military positions in the border area and on Mount Hermon in the Israeli-controlled Golan Heights, causing no injuries, the Israeli military said. The military said it responded with fire toward Lebanese positions, and evacuated Israeli visitors from a ski resort in the area.

Lebanese officials said the Israeli shelling targeted the border villages of Majidiyeh, Abbasiyeh and Kfar Chouba near the Chebaa Farms area. By afternoon, residents along the border reported the shelling had died down but that there were still Israeli aircraft flying overhead.

The dead U.N. peacekeeper was identified as Cpl. Francisco Javier Soria Toledo, 36, of Spain. Spanish Foreign Minister Jose Manuel Garcia-Margallo told reporters he received a phone call from Israel's ambassador to Spain offering condolences. The U.N. said the precise cause of death was under investigation.

Rocket and artillery fire continued on both sides of the border for hours after the initial attack.

Families living on the outskirts of the targeted southern Lebanese villages fled the Israeli fire, fearing they'd be hit. Celebratory gunfire echoed in Shiite-dominated areas of Beirut, while in other areas, nervous parents hurried to pick up their children from school and hunker down at home.

Sounds of gunfire were heard near the Israeli village of Shear Yashuv, and there were plumes of smoke near Mount Dov. Israeli helicopters flew overhead and Israeli police and army set up checkpoints on roads near the border, closing them briefly.

The clashes recalled the beginning of the 2006 Israel-Lebanon war, which was sparked by a Hezbollah attack on an Israeli military vehicle along the border, and the kidnapping and killing of two Israeli soldiers.

The ensuing monthlong conflict killed about 1,200 Lebanese and 160 Israelis and ravaged the Shiite-dominated region of southern Lebanon as well as the country's infrastructure.

However, Hezbollah, which has an arsenal of tens of thousands of missiles and rockets, is currently preoccupied with the war in neighbouring Syria, where it is aiding Assad's forces, and Israeli officials believe the Shiite militant group is not interested in opening a new front with Israel.

Still, some analysts warned that Hezbollah would not shy away from engaging Israel in what could become an expanded conflict drawing in Syria and even Iran.

"This is the beginning of what could be a major confrontation," said Kamel Wazne, founder of the Center for American Strategic Studies in Beirut. "My estimate is this is the beginning of redefining the new confrontation between Israel and Hezbollah, Syria and Iran."

However, Ayham Kamel, an analyst with Eurasia, said the latest Hezbollah attacks were structured as a limited retaliatory response to the Israeli airstrike on its fighters and would likely remain contained.

In an emailed note, he said the attacks were "a message from the resistance axis that the Golan Heights and southern Lebanon are effectively two open fronts for military operations against Israel."

Israel Ziv, a reserve Israeli general and a former head of the military's Operations Directorate, told reporters the situation was "flammable" and that Israel should work to "contain" the situation.

"We could find ourselves in a war that does not belong to Israel," he said.

"I do believe that Israel understands that it needs to contain it," he said, adding that Israel should not take any "steps that would pull us into the chaotic situation in Syria."

Tensions have been building for days in the disputed border zone between Israel, Lebanon and Syria. On Tuesday, two rockets fired from Syria hit the Israeli-controlled portion of the Golan Heights without causing injury. On Wednesday, Israel launched airstrikes into Syria targeting Syrian army artillery posts in response. No casualties were reported.

- Karam reported from Beirut. Associated Press writers Daniel Estrin, Tia Goldenberg and Ian Deitch in Jerusalem, Diaa Hadid in Beirut, Alan Clendenning in Madrid and Bradley Klapper in Washington contributed to this report.