Israeli forces say they have seized the Lebanese border village of Maroun al-Ras, an apparent base used by Hezbollah to fire rockets into Israel.
Lebanese civilians waving white flags have been fleeing attacks
Exchanges of fire can be still be heard in the village, said by Hezbollah to be the scene of an "epic battle".
Israeli planes reportedly bombed Beirut and the city of Sidon early on Sunday, the 12th day of the campaign.
Thousands of people have been trying to leave southern Lebanon and the United Nations warns of a humanitarian crisis.
Its humanitarian chief is en route to Beirut, as the UN seeks to secure safe routes out for fleeing civilians.
The UN's Jan Egeland said half a million people needed assistance - and the number was likely to increase.
One-third of the recent Lebanese casualties, he said, appeared to be children.
As concerns about hundreds of thousands of displaced civilians grew, Israel eased restrictions on Lebanon's blockaded ports to allow aid into the country.
Angry protests condemning Israeli attacks have been held in European cities. London saw the biggest with about 7,000 marchers, according to police.
Israel's latest aerial attacks focussed on the southern port city of Sidon and the southern suburbs of Beirut, a Hezbollah stronghold, news agencies say.
Hours earlier, Israel said its forces had driven Hezbollah guerrillas out of the hilltop village of Maroun al-Ras, where six Israeli commandos were killed earlier this week.
The report has not been confirmed independently and Hezbollah's al-Manar TV station reported earlier on Saturday that an epic battle was under way in the village.
According to the BBC's Crispin Thorold in Jerusalem, the village has a strategic value, overlooking several other sites said to have been used as launch pads for Hezbollah rockets.
Hezbollah continued to fire dozens of rockets into Israel on Saturday, hitting the towns of Carmiel, Kiryat Shmona and Nahariya, and wounding several Israelis.
There are substantial numbers of Israeli forces near the border, and military sources suggest that there will be continued incursions in the coming days.
Israel insists it has no plans for a large-scale invasion and its ground forces are only entering Lebanon to destroy Hezbollah hideouts that cannot be attacked from the air.
Israel issued a specific warning to civilians in 14 villages, telling them to leave by Saturday evening.
The warnings issued to 14 villages came a day after Israel dropped leaflets warning Lebanese civilians to flee a broad swathe of the south.
The BBC's Martin Asser in the southern city of Tyre described long queues of taxis and cars negotiating bomb-cratered roads and making detours around destroyed bridges.
Many civilians from villages in the region had gathered in the city during the week and are now trying to leave. However, many people say they are reluctant to move without UN protection.
On the 11th day of fighting, Israeli jets knocked out TV and phone masts in the east and north of Lebanon, disrupting broadcasts for Hezbollah's Al-Manar television and the Lebanese Broadcasting Corporation.
Israel also briefly occupied the village of Marwahin, but has now withdrawn.
US Secretary of State Condoleezza Rice is travelling to the Middle East on Sunday, as is German Foreign Minister Frank Walter Steinmeier, who helped broker a prisoner exchange between Israel and Hezbollah in 2004.
In his weekly radio address, US President George Bush stressed the need for "confronting the terrorist group that launched the attacks and the nations that support it".
He described Syria as "a primary sponsor" of Hezbollah, and accused Damascus of helping provide the group with Iranian weapons.
His comments followed a report in the New York Times, citing US officials who said the US was rushing a delivery of satellite and laser-guided bombs to Israel.
The crisis was triggered by the capture of two Israeli soldiers by Hezbollah militants on 12 July.
Israeli government spokesman Avi Pazner told the BBC Israel was not interested in invading, conquering or occupying Lebanon, from where it withdraw troops in 2000.
"We only want to get rid of Hezbollah," he said.
Senior Lebanese officials have warned the country's army will go into battle if Israel invades.
More than 350 Lebanese have been killed in the 11 days of violence, many of them civilians.
Thirty-four Israelis have been killed, including 15 civilians killed by rockets fired by Hezbollah into Israel.