Hezbollah's leader issued a defiant new message to Israel as warplanes went into action over Lebanon again on Friday on the 10th day of a conflict that is costing more lives each day and creating a growing humanitarian crisis.

Israeli troops battled guerrillas long into the night after mounting an incursion into Lebanon, causing casualties on both sides, while the government warned it could launch a full-scale ground offensive in its war on Hezbollah.

UN Secretary General Kofi Annan on Thursday demanded an immediate ceasefire, highlighting the human suffering caused by the offensive which has left more than 330 dead in Lebanon and sent hundreds of thousands fleeing their homes.

Another 33 Israelis at least have been killed in the worst cross-border fighting in almost a quarter century.

"Both the deliberate targeting by Hezbollah of Israeli population centres with hundreds of indiscriminate weapons and Israel's disproportionate use of force and collective punishment of the Lebanese people must stop," Annan said.

He proposed a blueprint calling for the deployment of a stabilization force and for Hezbollah to release two Israeli soldiers whose capture 10 days ago unleashed the Israeli onslaught on its northern neighbour.

But Hezbollah's firebrand leader Hassan Nasrallah - who has declared open war on Israel - said the two captive soldiers would not be freed without an exchange of Arab prisoners held in Israeli jails

And he boasted that Israel's firepower had failed to knock out Hezbollah's arsenal or its leaders.

Defence Minister Amir Peretz warned that Israel would launch a full-scale ground operation if it considered it necessary.

"Let no terror organisation feel we would cower from any operation," he said. "We have no intention of conquering Lebanon but... we will do it without thinking twice."

Israel has made no secret of its desire to liquidate Nasrallah and has already launched air raids destroying his offices and home and dropped 20 tonnes of bombs on what it believed to be a bunker where leaders were hiding.

With no sign the international community is closer to brokering a ceasefire despite Annan's call, thousands of foreigners are continuing to be evacuated by sea from Beirut to the neighbouring Mediterranean island of Cyprus.

Thousands of Lebanese are also streaming out of southern Lebanon, which has borne the brunt of Israel's bombardment and is the focus of international warnings of a humanitarian catastrophe.

In the latest fighting, four Israeli soldiers and two Hezbollah fighters were killed in clashes as Israel sent in ground forces across the border in the latest phase of its campaign to crush the Shiite Muslim militia.

One soldier was also killed when two Israeli combat helicopters collided over Israel near the Lebanese border late Thursday.

Lebanese Prime Minister Fuad Siniora, who has issued desperate appeals for help from the international community, said there was no apparent political settlement to end hostilities.

"The United States is allowing Israel to pursue its aggression," he told AFP in an interview.

The international community was bracing for a humanitarian disaster in Lebanon, where food and medical supplies are running short because of an Israeli air and sea blockade.

Israel has put the only international airport out of action, bombed houses, roads, bridges, factories, warehouses and even trucks, creating scenes reminiscent of the country's devastating 1975-1990 civil war.

"The most basic human rights of the population are at risk or are being violated, including their rights to life, health and food," UN High Commissioner for Human Rights Louise Arbour said, warning that perpetrators in the conflict could be held to account for war crimes.

The European Commission has announced it was doubling its emergency aid to around 12.6 million dollars while UNICEF was giving 7.5 million and the UN refugee agency was planning for a multimillion dollar operation.

But international diplomatic efforts to end the bloodshed have yet to bear fruit, with Israel's chief ally the United States refusing to back calls for a ceasefire until Hezbollah halts its rocket attacks.

The US State Department said Thursday that Secretary of State Condoleezza Rice would travel to the Middle East as early as next week to press for a political solution to the crisis, but no precise itinerary was given.

Israel, which has sent ground troops back into Lebanon for the first time since it ended its occupation in May 2000, has been emboldened by strong public support at home and the lack of a ceasefire call from its ally Washington.

But even in Israel, doubts were emerging about the effectiveness of an offensive that has failed to stop Hezbollah fire, eliminate its leadership or push fighters back from the border.

Israel is also pushing on with its air, sea and ground offensive on the Gaza Strip, where at least 100 people have been killed in two weeks, and warned civilians that homes storing weaponry were now targets.

Four Palestinians were killed by Israeli fire on Thursday, one of them  from the armed wing of the governing Hamas hit in an Israeli air strike on the Gaza Strip's Maghazi refugee camp. Another was killed on Friday.

Horrific scenes of bloodied children with severe shrapnel wounds being rushed to casualty in the neighbouring Deir al-Balah refugee camp were witnessed by an AFP photographer after an Israeli shelling on Maghazi.

In Beirut, the exodus of foreigners from Lebanon picked up pace, with Western nations increasing the flow of evacuations and other countries such as India and the Philippines starting to bring out their nationals.

US Marines were out in force to secure a port being used to evacuate American citizens from Lebanon to Cyprus, which lies just 100 miles (160 kilometres) to the west and is being used as the evacuation hub.

It was the first time US Marines were operating in Lebanon since they quit the country following a guerrilla attack on their barracks in 1983 that left 240 dead, the worst US lost since World War II.

A US amphibious warship took aboard more than 1,000 people and departed Beirut without incident in the first major military-run evacuation of US citizens from Lebanon.

And a UN-chartered cruise ship arrived in Cyprus early Friday carrying 900 United Nations staff, dependants and other evacuees escaping from Lebanon.