Israel launched what it described as a pre-emptive strike on Hezbollah positions in southern Lebanon on Sunday.
The militant group in turn said it had launched hundreds of rockets and drones across the border to avenge the killing by Israel of one of its top commanders in Beirut last month.
It was one of the biggest clashes between the two sides in more than 10 months of cross-border warfare, but does not appear to have ignited a long-feared war.
The fighting began in parallel with Israel’s counterattack in Gaza and risks turning into a regional war.
There are fears that it could draw in Hezbollah’s backer, Iran, and the United States which is Israel’s main ally.
By mid-morning, the exchange came to an end with both sides saying they had only aimed at military targets.
At least three people were killed in the strikes on Lebanon, while there were no reports of casualties in Israel.
Israel’s prime minister Benjamin Netanyahu has said its large-scale attack on Hezbollah positions was “not the end of the story”.
Hezbollah’s leader, Hassan Nasrallah, said the group’s attack on Israel in retaliation for the killing of Fouad Shukur had been delayed to give the Gaza ceasefire talks a chance.
“They [the Americans] started saying there will be a stop to the aggression and that there was going to be a ceasefire and to hold off. And that is why we took our time,” he said.
In the United States, a spokesman for the National Security Council, Sean Savett, said President Joe Biden was “closely monitoring events in Israel and Lebanon”.
Egypt on Sunday hosted the latest round of high-level talks aimed at brokering the ceasefire in the 10-month-old Israel-Hamas war in Gaza.
But there was no agreement in those discussions with neither Israel nor Palestinian group, Hamas, agreeing to compromises proposed by mediators.
An anonymous US official said talks will continue at lower levels in the coming days in an effort to bridge remaining gaps.
