Warplanes fired rockets on the Lebanon-Syrian border and hit the centre of Beirut for the first time.
More than 80 Lebanese have died, including 18 fleeing border areas, in the strikes launched after Hezbollah militants seized two Israeli soldiers.
Hezbollah launched rockets on the town of Tiberias in the deepest such attack in Israel. Four Israelis were injured.
Israel has deployed Patriot interceptor missiles in the northern port city of Haifa which was hit by rockets earlier.
One Israeli soldier was killed and three were missing from a warship struck by Hezbollah on Friday.
"Bodies litter the road"
In an emotional appeal on Lebanese television, Prime Minister Fouad Siniora called for an immediate ceasefire and urged the US to intervene.
"Lebanon is a disaster zone... and (it) pleads to its friends in the world to rush to its aid," he said.
Following emergency talks in Egypt, Arab League Secretary General Amr Moussa said the Middle East peace process had failed and urged the UN Security Council to tackle the crisis.
In other Israeli attacks on Saturday:
Mid-East crisis map
'Bodies litter road'
Women and children were among at least 18 killed when their vehicles were struck by missiles on the coastal road to the southern city of Tyre.
"Bodies litter the road," an eyewitness said.
Local residents told al-Jazeera TV the victims had been hit after being told to leave the village of Marwahin by the Israelis and then refused shelter by the UN forces.
The main road had been under continuous bombardment, Ahmad Ali Ubayd said.
The Israeli Army said the responsibility for endangering the civilian population rested with Hezbollah, and they regretted civilian casualties while targeting areas used as a launching ground for missiles.
Correspondents say there is nowhere safe to go for many trying to flee the south.
In past hostilities, much of the mainly Shia population of the south has sought refuge in Beirut's largely Shia southern suburbs, which are now under attack too.
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A number of bridges, petrol stations and key roads have also been hit, including the main road linking northern Lebanon to Syria.
Thousands have fled into Syria.
Thousands of foreigners have also left Beirut, leaving its economy in tatters.
Countries including the US and France are making plans to evacuate their nationals from Lebanon.
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