The Israeli military fired a barrage of shells into southern Lebanon in retaliation on Sunday after Katyusha-style rockets slammed into the Jewish state, officials said.
The exchange of fire hit uninhabited areas of both Israel and Lebanon without causing casualties or damage, officials on both sides said.
The Israeli government accused the powerful Lebanese Shiite militant group Hezbollah of being responsible for the rocket fire and threatened an even tougher response to any further attacks.
The UN peacekeeping force in south Lebanon (UNIFIL) said two rockets fired from the El Khiam area had struck open ground near the northern Israeli town of Kiryat Shmona.
The Israeli army responded with 32 rounds of artillery fire directed at the area from where the rockets originated, it said.
Tension has spiked on the border between the two countries since Lebanese troops gunned down an Israeli soldier driving near the frontier on December 16.
Israeli Prime Minister Benjamin Netanyahu accused Hezbollah of being involved in the rocket fire.
"Hezbollah deploys thousands of rockets and missiles among the civilian population. So it is committing a double war crime under the patronage of the Lebanese government and its army, who do nothing," he said.
Netanyahu's defence minister warned Beirut that tougher reprisals could follow.
"We will not tolerate fire from Lebanon on our territory... We consider the Lebanese government and army responsible for this morning's fire," Moshe Yaalon said.
"The Israeli army responded by firing a large number of shells at the area from where the rockets were fired. If necessary, it will be even tougher," he added.
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UNIFIL commander Major General Paolo Serra called on both sides to "exercise maximum restraint".
"This is a very serious incident... and is clearly directed at undermining stability in the area," he said.
UN chief Ban Ki-moon echoed the call for calm.
"The secretary general urges all actors to exercise maximum restraint and prevent further incidents with destabilising and escalatory potential in the region," his spokesman said.
Lebanese troops and UNIFIL peacekeepers were carrying out patrols in the area after the exchange of fire, an AFP correspondent reported.
The Lebanese army said it had found four rocket launchers.
Israel's border with Lebanon has been largely quiet since the 2006 war with Hezbollah.
The last time a soldier was killed on the frontier was in August 2010, when two Lebanese soldiers and a journalist also died.
In August, four Israeli soldiers were wounded by an explosion some 400 metres (yards) inside Lebanese territory, in a blast claimed by Hezbollah.
Earlier this month, Hezbollah said one of its top leaders was killed near Beirut and blamed Israel for his murder, a charge denied by Israel, which warned against any retaliation.
UN peacekeepers were deployed along the border following the 34-day war in 2006 which killed some 1,200 people in Lebanon, mostly civilians, and 160 Israelis, mostly soldiers.