The United States has warned Lebanon and Syria over the first big attack by Lebanese Hezbollah fighters against Israel for several months.
Israeli artillery fired at suspected Hezbollah positions in Lebanon
The State Department in Washington said it was in the interest of both Syria and Lebanon maintain calm in the border area.
Earlier, Israeli forces attacked Hezbollah positions in southern Lebanon after the guerrillas launched an assault on Israeli border posts in the disputed Shebaa Farms area.
The upsurge in fighting comes nearly a week after Hezbollah accused Israel of being behind a car bomb attack in Beirut that killed one of the movement's officials.
Hezbollah says the Shebaa Farms area is Lebanese territory, but Israel says the farms are on the Syrian side of the border and so are part of the Golan Heights, which it has occupied since 1967.
There were no immediate reports of casualties in Friday's violence.
A correspondent for the French news agency AFP saw a large cloud of black smoke rising from one Israeli position, known as Radar, that was repeatedly targeted.
Hezbollah fighters also launched assaults with mortars, rockets and machine-guns on two other posts.
The attack prompted a stern warning from the US to both Lebanon and Syria - the main power-broker in the region.
"We have made clear to Lebanon and Syria of our serious concern over this calculated and provocative escalation by Hezbollah," State Department spokesman Philip Reeker said.
"We have stressed the importance of maximum restrain to prevent any further attacks," he added.
Israel, for its part, Israel responded with air strikes and artillery fire against suspected Hezbollah positions across the border.
The military commander in charge of northern Israel, General Beni Gantz, said his forces weren't afraid of the conflict escalating - but Syria, Lebanon and the residents of Lebanon certainly should be.
The Shebaa Farms region - an area that amounts to little more than 10 square kilometres (six square miles) - has been relatively quiet in recent months.
The border region between Israel and Lebanon remains tense, despite Israel's withdrawal from south Lebanon in 2000.
It ended a 22-year occupation, but Hezbollah - a Lebanese Shia Muslim militant group backed by Syria and Iran - says Israel's withdrawal will not be complete until the farms are vacated.