Six Israelis have been killed and a further six wounded after gunmen opened fire on vehicles in northern Israel near the Lebanon border.
Security forces said they killed two attackers who were disguised as Israeli soldiers and were searching for more.
A member of the Al Aqsa Brigades, a militia linked to Palestinian leader Yasser Arafat's Fatah movement, said the
group carried out the attacks.
The spokesman said that the assailants came
from the Palestinian refugee camp of Ein El-Hilweh in the southern Lebanese city of Sidon.
The incident was the most serious violence near the Israel-Lebanon border since the Israeli military withdrew from south Lebanon in May 2000.
Israeli police initially said they believed the attackers came from Lebanon, but the army has said there is no indication that they had infiltrated across the border.
A witness telephoned Israeli radio from under a bridge where he was hiding and said the shooting came from a ridge overlooking the road between the town of Shlomi and Kibbutz Metzuba.
"I saw a car zigzagging and I heard shooting and people got out of the cars and ran for cover," said the witness, named only as Michael.
He said he saw that several people
had been hit.
Kobi Levy, an army officer who got caught in the ambush, said he swerved into the oncoming lane to turn back traffic, including a bus with children which apparently escaped to safety.
He said the gunmen continued to fire
for more than an hour, stopping ambulances from removing the wounded.
Residents of the kibbutz fled to underground shelters when the shooting began.
Communities in the area have been put on high alert
Police sources said the dead included a shepherd, two truck drivers and a woman and her daughter.
An army officer leading the response to the attack was also killed.
None of the six wounded Israelis were believed to have been seriously hurt.
Police, soldiers and a helicopter
responded immediately to Tuesday's attack, witnesses said.
A woman living in Shlomi told Israel radio that army attack helicopters were passing overhead, shooting at the gunmen.
She said local Israeli leaders were driving through the town urging residents to stay inside.
Provoking wider war
The woman said: "We have been
worried that this might happen ever since the withdrawal from Lebanon."
Since withdrawing from an occupied area of southern Lebanon in May 2000, Israel has erected an electric security fence along the frontier.
Raanan Gissin, an adviser to Israeli Prime Minister Ariel Sharon, said the gunmen's purpose was to provoke a wider war - whether they were from Lebanon or from within
"We will not allow any kind of escalation," he said.
"At the same time, we will pursue the terrorists and those who perpetrated this act and we will be able to strike at them with impunity."
Several vehicles were hit by gunfire
Galilee district police chief Lieutenant Commander Yehuda
Solomon said: "This was a very serious attack.
"Only a good investigation will
be able to tell who these men were and where they came from."
Soon after the attack, the television station of Hezbollah guerrillas in Lebanon suggested that Palestinian militants were responsible.
There was no immediate comment from Hezbollah.
In Lebanon, Defence Minister Khalil Hrawi denied that the attackers came from his country.
"There is a UN presence in the (border) area and the United Nations must determine the source of gunfire," he said.
Lebanese security officials, who declined to be named, told the Associated Press news agency that it appeared the attack had been launched from within Israeli territory.