Two Israeli soldiers were killed in the Hezbollah attack, Israeli military have said.
A military statement said seven soldiers were also wounded in the attack on a convoy near the Lebanon border.
A UN peacekeeper has been killed in Lebanon although it is not clear if it is linked to clashes between the country and Israel.
The death was confirmed by a UN spokesman and the organisation said they were "looking into the circumstances of the tragic incident".
Andrea Tenenti, spokesman for the United Nations Interim Force in Lebanon, said the incident happened close to the Israeli-occupied Shebaa Farms area.
Lebanese Hezbollah group fired a missile at an Isreali military convoy, prompting retaliation.
No Israeli soldier has been captured by Hezbollah, according to a source who has spoken to Reuters.
Lieutenant-Colonel Peter Lerner, an Israeli military spokesman, said: "The rumour of abduction has been ruled out."
He made the statement after Lebanon's national news agency reported that a soldier had been seized.
The Lebanese Hezbollah group has said it fired a missile at an Israeli military convoy, prompting retaliation from Israel, in a significant escalation along the volatile border, Associated Press reports.
Hezbollah said its fighters destroyed a number of vehicles carrying Israeli officers and soldiers and caused casualties among "enemy ranks".
The Israeli military said an anti-tank missile hit a military vehicle near the Lebanese border. It did not immediately report any casualties, and said residents of the area had been ordered to remain in their homes.
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Some 11 militants have been killed in fighting with the Lebanese army near the Syrian border on Saturday, a Lebanese security official said. The deaths came in a battle sparked by an attack on security forces in a town near the Syrian border.
The gunmen were killed during an advance by Lebanese soldiers in Wadi Hamid, near Arsal, where earlier two Lebanese soldiers were killed when the Nusra Front, al Qaeda's branch in Syria, attacked security forces in the town.
Radical Islamic cleric Omar Bakri Mohammed will not be allowed back into Britain, the Government has insisted after reports emerged he intends to claim asylum in the UK.
The extremist preacher faces the death sentence for running a terror cell in Lebanon and claims he has been tortured, according to reports. Family members have said they are launching an urgent appeal to allow him back into Britain under asylum laws.
A Home Office spokesman said: "Omar Bakri Muhammad was permanently excluded from the UK in 2005 on the grounds that his presence is not conducive to the public good.
"As Omar Bakri Muhammad is excluded from the UK, he will be unable to make a claim for asylum."
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A "devastating milestone" has been reached with one million Syrian refugees now in Lebanon which has had a "staggering" impact on the country, the United Nations said.
UN High Commissioner for Refugees Antonio Guterres said: "The influx of a million refugees would be massive in any country. For Lebanon, a small nation beset by internal difficulties, the impact is staggering.
"The Lebanese people have shown striking generosity, but are struggling to cope.
"Lebanon hosts the highest concentration of refugees in recent history. We cannot let it shoulder this burden alone."
Refugees from Syria now equal one quarter of Lebanon's population, according to UN figures.
A suicide car bomb has exploded at a Lebanese army checkpoint in the border town of Arsal, causing casualties, Lebanese security sources have said.
"There are dead and wounded among the soldiers," a security source said.
The town of Arsal is home to thousands of Syrian refugees and also Syrian rebels and their Lebanese allies who have fled an army advance on the Syrian side of the border.