The row has the potential to spiral into armed conflict.
Jordan-based US water expert Jim Franckiewicz travelled to southern Lebanon on Monday, accompanied by US embassy and Lebanese officials, to watch workers laying pipes to pump water from the Wazzani river for use by nearby villages.
A State Department official, whom Lebanon has named as Richard Larsen, is expected to come to the region in the coming days for talks in Beirut and Israel.
The Wazzani is a tributary of the Hasbani river which provides about 20% of the water that flows into the Sea of Galilee - Israel's main source of drinking water.
Last week Israeli Prime Minister Ariel Sharon said Lebanon's Wazzani plan could be "causus belli", a cause for war, between the two countries.
The US embassy in Beirut said both countries had agreed to the US mission.
However a Lebanese official, quoted by the French news agency AFP, stressed that the conflict should be "settled within the framework of the United Nations in line with international conventions".
Heightened tension
In 2001, Lebanon went ahead with a pumping project from Hasbani river to irrigate the drought-stricken border village of Ghajar, despite strong Israeli objections.
Beirut says the plan is to take less that 10 million cubic metres from the Wazzani, which it says falls within its fair share of water according to international law.
Lebanese officials say the Wazzani's annual flow is 50 million cubic metres a year, and the Hasbani's flow is 150 million cubic metres.
Speaking after a meeting with US Deputy Secretary of State Richard Armitage on Friday, Israeli Foreign Minister Shimon Peres called the project an "unnecessary provocation" from Lebanon.
Lebanon was allocated 35 million cubic metres from the Wazzani according to the Johnston water sharing agreement of 1955, but that was never ratified by Arab states because they did not recognise Israel.
Water is a sensitive issue in the Middle East, and the dispute comes at a particularly crucial period, as the US continues to threaten Iraqi President Saddam Hussein with the prospect of military action.
"Water is a red line for Israel and there is a 50% chance this could escalate even if there is a US war on Iraq looming," Lebanese water expert Nabil Khalife told Reuters news agency.