Rockets fired by Hezbollah militants in Lebanon have killed at least eight people and wounded dozens of others in the coastal Israeli city of Haifa.
It is the worst attack on Israel since the clashes with Lebanon began.
Israeli Prime Minister Ehud Olmert said the strike on Israel's third city would have "far-reaching consequences".
Hours later, 10 Lebanese people died in an Israeli air raid on south Lebanon as Israel continued strikes, which have claimed more than 100 Lebanese lives.
The Israeli air strikes began after Hezbollah seized two Israeli soldiers in a raid into Israel on Wednesday.
In other developments:
- Hezbollah leader Hassan Nasrallah denounces Israel for attacking Lebanese civilians and villages, in his first televised appearance since the offensive
- Iran's foreign ministry denies Israeli allegations that it supplied missiles to Hezbollah and warns Israel it will incur "unimaginable losses" if it attacks fellow Hezbollah supporters Syria
- The Israeli military recovers the bodies of three sailors missing after their ship was hit by a Hezbollah missile on Friday, bringing the number of Israeli troops killed in the Lebanon offensive to 12
- Israel raises the rocket alert threat as far south as Tel Aviv
- European Union Foreign Policy chief Javier Solana arrives in Beirut for talks on the crisis
Pools of blood
Correspondents say the large death-count in a strike on Israel's third-largest city has rattled the whole country.
It is the second time Haifa has been hit by Hezbollah rockets in recent days.
In a first salvo on Saturday at least 13 rockets were reported to have landed in the city.
The eight people who died were part of a train repair crew working at a railway depot.
The BBC's Wyre Davies at the depot says that the rocket, believed to be a Katyusha rocket, crashed through the roof.
About 50 people were also injured.
Our correspondent says that the devastation is still apparent, with pools of blood everywhere.
The attack on Haifa raised Israel's civilian death toll from the fighting to 12.
According to Israel Radio a second wave of four rockets then hit, one landing in a city street. People driving on the roads in Haifa reportedly abandoned their cars as they fled from the onslaught.
Israeli war planes have continued to attack Beirut
Following the depot attack a new barrage of rockets hit to the north of the city in Kiryat Motzkim and Kiryat Haim.
Hezbollah has claimed responsibility for the attacks, saying it was retaliation for the deaths of Lebanese civilians and the destruction of the country's infrastructure during the Israeli air raids.
Israel has carried out a heavy bombing campaign across Lebanon, hitting Hezbollah sites, but also a wide range of civilian targets.
The BBC's Ian Pannell in Beirut says that there have already been a number of Israeli air strikes against Lebanese targets on Sunday.
In the southern suburbs of Beirut, Hezbollah's al-Manar TV was attacked.
A major power station in Beirut was also struck.
There was also a raid in the eastern city of Baalbek, where local Hezbollah leaders were believed to have gathered.
US security teams have landed at the US Embassy in Beirut to start planning the evacuation of Americans.
Foreign nationals have been leaving Lebanon to escape the violence.
As the violence has escalated the number of locals attempting to flee has grown, but with the Israelis targeting the border areas and nearby roads, this has become increasingly difficult.