The United Nations voiced concern about attacks near the Lebanon-Israel border that killed a French officer, an Israeli soldier and a Hizbullah guerrilla and urged restraint on all sides.
"This is the time to maintain calm, this is the time not to go into escalation and yesterday we came very close to this," said Mr Staffan de Mistura, UN Secretary-General Kofi Annan's representative in south Lebanon.
"We are asking all sides now to contain their actions and to control the actions on the ground," he told reporters.
Mr Mistura said one Israeli officer was killed and three others wounded in a Hizbullah attack one kilometre across the frontier drawn up by the United Nations when Israel withdrew from Lebanon in 2000 and known as the Blue Line.
He said fire from the Israeli side killed a French UN observer and wounded a Swede. Hizbullah has said one of its fighters also was killed.
It was the first serious flare-up of violence since July in the Israel-Lebanon border region, where in 2000 Hizbullah was a main force in driving Israeli troops from southern Lebanon after a 22-year occupation.
Hizbullah said the vehicle it attacked was in Shebaa Farms, an area the United Nations calls Israeli-occupied Syrian territory but Hizbullah says is Lebanese land. The group said the attack was in response to continued occupation.