Israel has approved the call-up of thousands of fresh reservists to boost its military campaign in Lebanon.
Israel suffered its worst losses in an ambush in Bint Jbeil
A cabinet meeting said troops were being readied "ahead of possible developments" and to refresh forces.
But ministers did not decide to launch a larger ground offensive - a day after Israel suffered its biggest one-day loss of the 16-day conflict.
The European Union has dismissed an Israeli minister's remark that it had been given the green light to continue.
Later, the UN Security Council expressed "shock and distress" at the deaths of four of its observers in an Israeli bombing raid, but did not formally condemn the strike despite lengthy negotiations.
Israel's UN ambassador, Dan Gillerman, praised the "fair and balanced" statement, and expressed regret for the "tragic accident".
On Thursday, Israeli warplanes bombed targets across Lebanon. Hezbollah launched more than 40 rockets into Israel.
Lebanon's health minister said up to 600 Lebanese civilians had been killed so far - including as many as 200 still buried under the rubble of destroyed buildings.
Fifty-one Israelis have died in the violence since Hezbollah captured two Israeli soldiers in a cross-border raid on 12 July.
However, a poll of Israelis published by Israel's Maariv daily newspaper suggests 82% back the offensive and 95% say the action is justified.
Three divisions of Israeli reservists are to be called up, with estimates varying from 15,000 to 40,000.
A statement from the Israeli cabinet meeting said their deployment would only come after an "additional" approval.
Ministers also said current military activities would be kept unchanged - despite apparent pressure from the military establishment to step up ground operations.
Defence Minister Amir Peretz said Israel's military operation would continue until a secure border strip was set up where Hezbollah could not return.
LEBANON TWO WEEKS ON
Three airports bombed
62 bridges destroyed
Three dams and ports hit
5,000 homes damaged
"We will not allow the Hezbollah flag to be lifted again on the fences of the state of Israel," Mr Peretz said.
"The strategic damage to Hezbollah is huge," the army's Chief of Staff, Lt Gen Dan Halutz, said, as Israeli troops battled Hezbollah militants in the Hezbollah stronghold village of Bint Jbeil, where they have suffered the worst losses.
Cpt Doron Spielman told BBC News the battle was being fought at close range and accused Hezbollah of using the civilian population as human shields.
"Hezbollah blockaded the city before the battle began, and we now know at gunpoint forced the Lebanese residents to stay inside the city," Cpt Spielman said.
"We are engaged in a very close combat urban battle - but there are Lebanese civilians trapped inside the city which makes our progress very difficult. We are trying of course to take care of the terrorists while preserving civilian life."
The head of political programmes at Hezbollah's TV station al-Manar, Ibrahim Moussawi, has said the organisation is determined to continue fighting.
"The Israelis have tried this before since 1982, which culminated in the year 2000 with the defeat of the Israelis and their withdrawal from south Lebanon," Mr Moussawi said.
Foreign ministers from key countries - including the US, UK and regional powers - attended emergency talks on the crisis in Rome on Wednesday.
They did not call for an immediate ceasefire, vowing instead to work with the "utmost urgency" for a sustainable truce.
"We received yesterday at the Rome conference permission from the world... to continue the operation," Israeli Justice Minister Haim Ramon said.
But a high-level EU delegation told Israel the conference had not authorised the campaign.
"The EU's position is that we should have an immediate ceasefire," said Finnish Foreign Minister Erkki Tuomioja, whose country holds the rotating EU presidency.