Israeli officials say they want to avoid all-out war in Lebanon retaliation

Two other Israeli officials said Israel was preparing for the possibility of a few days of fighting following Saturday's rocket strike at a sports field in a Druze town that it blamed on the Iranian-backed Lebanese group Hezbollah.

Hezbollah has denied any connection with the incident.

Iran's President Masoud Pezeshkian said any Israeli attack on Lebanon would have "serious consequences" for Israel, Iranian state media quoted him on Monday as telling French President Emmanuel Macron in a phone call. Pezeshkian did not elaborate.

All four Israeli officials, who included a senior defence official and a diplomatic source, spoke to Reuters on condition of anonymity and gave no further information about Israel's plans for retaliation.

"The estimation is that the response will not lead to an all-out war," said the diplomatic source. "That would not be in our interest at this point."

In a statement issued by his office on Monday after he visited Majdal Shams, the site of Saturday's attack, Prime Minister Benjamin Netanyahu said: "The state of Israel will not and cannot let this pass. Our response will come and it will be harsh."

Both Israel and heavily armed Hezbollah have appeared at pains to avoid a full-scale war since they began trading blows in October.

The United States is leading a diplomatic dash to deter Israel from striking Lebanon's capital Beirut or major civil infrastructure, five people with knowledge of the matter said.

The focus of the high-speed diplomacy has been to constrain Israel's response by urging it against targeting densely populated Beirut, the southern suburbs of the city that form Hezbollah's heartland or key infrastructure like airports and bridges, the sources told Reuters.

But Saturday's incident has increased concerns that the months of cross-border hostilities could spiral into a broader, more destructive war.

An Israeli drone strike killed two Hezbollah fighters in south Lebanon on Monday as well as three other people including an infant, sources said. They were the first fatalities in Lebanon since Saturday's incident.

The Israeli military said its air defences downed a drone that crossed from Lebanon into the Western Galilee area on Monday.

'LIMITED' RESPONSE FLAGGED

Israel's security cabinet has authorised Netanyahu and Defence Minister Yoav Gallant to decide on the manner and timing of a response to Saturday's strike.

Gallant reaffirmed, in comments to U.S. Defense Secretary Lloyd Austin on Monday, that "Iranian proxy Hezbollah" would be held responsible for the rocket strike.

Israel's Yedioth Ahronoth newspaper quoted unidentified officials as saying the response would be "limited but significant".

The report said options ranged from a limited attack on infrastructure, including bridges, power plants and ports, to hitting Hezbollah arms depots or targeting Hezbollah commanders.

Exacerbated by the Gaza conflict, hostilities between Israel and Hezbollah have been their worst since they went to war in 2006.

Hezbollah, an ally of Palestinian group Hamas, has said its attacks on Israel have aimed to support the Palestinians and indicated it will only cease fire when Israel's offensive on Gaza stops.

The conflict at the Israel-Lebanon border has forced tens of thousands of people to leave their homes on both sides.

While Washington has also blamed Hezbollah for the rocket strike and defended Israel's right to respond, U.S. Secretary of State Antony Blinken, in a phone call with Israeli President Isaac Herzog on Monday, emphasised the importance of preventing escalation of the conflict, the U.S. State Department said.

They discussed efforts to reach a diplomatic solution to allow displaced people to return home.

White House national security spokesman John Kirby also said the Golan incident should not affect ongoing negotiations on a ceasefire and release of hostages held by Hamas in Gaza.

The U.N. peacekeeping mission in south Lebanon said it had intensified contacts with Israel and Lebanese authorities to dial down tensions. "Nobody wants to start a wider conflict, but a miscalculation could trigger one. There is still space for a diplomatic solution," spokesperson Andrea Tenenti said.

Flights at Beirut's international airport have been cancelled or delayed. Jordan's flag carrier Royal Jordanian has suspended flights to Beirut on Monday and Tuesday, Jordanian TV reported, citing a statement from the airline.

Hezbollah has denied firing the rocket that killed the youngsters. It said on Saturday it had fired a missile against a military target on the Golan.

Israel seized the border region from Syria after the 1967 war and has since annexed it in a move not generally recognised internationally, although the U.S. considers it part of Israel.

Since October, Israeli strikes have killed around 350 Hezbollah fighters in Lebanon and more than 100 civilians, according to security and medical sources and a Reuters tally of Hezbollah death notifications.

Israel says 23 civilians and at least 17 soldiers have been killed in Hezbollah attacks since October.