UN Secretary General Kofi Annan says Israel and Hezbollah have accepted his offer to mediate in the dispute over two captured Israeli soldiers.
Mr Annan said the mediator would work discreetly
Hezbollah seized the soldiers during a cross-border raid in July, triggering the recent conflict with Israel.
The group has called for an exchange of prisoners with Israel.
Israel has repeated its view that the soldiers must be freed unconditionally and has said the UN will assist, rather than mediate, towards this end.
An Israeli spokesman Mark Regev told the BBC that Israel viewed the continued detention of the two soldiers as a violation of the ceasefire that ended the fighting, and expected the UN to facilitate their unconditional release.
The BBC's Jill McGivering in Jerusalem says it is politically awkward for Israel to endorse the idea that the UN is brokering negotiations between Israel and Hezbollah.
Israel's public position is that it will not negotiate with Hezbollah, which it regards as a terrorist group.
However, our correspondent says many Israelis accept that a deal - of the kind struck over prisoners in the past - is likely.
A special mediator will be appointed but Mr Annan intends to keep his or her name, and the negotiations, secret.
Many areas are in ruins following the conflict
Mr Annan's spokesman said both parties had asked for mediation and that he had agreed "to play a role".
Mr Annan, his spokesman said, "has not only received a green light from the Israelis but they have also given him a contact point".
But the Israeli government said Mr Annan's announcement was not in line with its position on the prisoners.
"A mediator is not needed," an official told the Reuters news agency.
"The UN resolution determines that soldiers will be released unconditionally. The UN secretary general will assist - and not mediate."
In August, the UN Security Council passed a resolution backing the ceasefire after the month-long war between Israel and Hezbollah.
Resolution 1701 called for "a full cessation of hostilities", and for UN and Lebanese troops to replace Israeli forces in southern Lebanon.
Speaking at a news conference in the Saudi city of Jeddah, Mr Annan said: "Both parties have accepted the good offices of the secretary general to help resolve this problem."
He added that he would not name the mediator because he wanted him or her to work "discreetly".
Other potential mediators to secure the release of the Israeli soldiers have included US civil-rights campaigner Jesse Jackson, and the head of German intelligence.
Two years ago, German-led negotiations brokered a prisoner exchange between Israel and Hezbollah.
Mr Annan has left open the possibility that the negotiations might also include a third Israeli soldier, Gilad Shalit.
Cpl Shalit was captured by Palestinian militants in June.
Egyptian diplomats have been working for his release, but without success.