Israeli Defense Minister Amir Peretz on Wednesday held the Lebanese government responsible for the fate of two Israeli soldiers reportedly seized by Lebanon's Hizbollah militia.

"The Lebanese government, that allows Hizbollah to operate in its sovereign territory, will be held responsible for the results and the outcome," he said in a statement issued by the Defense Ministry.

Earlier, the Israeli army confirmed that two soldiers were missing in fierce clashes against Hizbollah militants in the border area.

Hizbollah claimed kidnapping the soldiers, demanding Israel release prisoners held in Israeli jails in exchange for their release.

"If the suspicion that soldiers have been kidnapped turns out to be true, the army will hold the Lebanese government responsible for their fate," said Peretz, demanding the Lebanese authorities act immediately to secure the soldiers' return to Israel.

"The state of Israel sees itself as free to take all the steps it believes are appropriate," he warned.

Meanwhile, Israeli Prime Minister Ehud Olmert said that those involved in the border attacks would pay "a heavy price."

"These are difficult days for the State of Israel and its citizens...There are elements in the north and in the south who are threatening our stability and are trying to test our steadfastness. They will fail, and pay a heavy price for their actions," he said.

Olmert is expected to convene an emergent meeting later in the day.

In addition, local Israeli newspaper The Jerusalem Post cited defense officials as saying that Peretz had ordered the Israeli army to take all the necessary steps to retrieve the two missing soldiers.

Israeli Army Radio reported that Israeli troops entered Lebanon to search for the two soldiers.

Israeli troops traded fire with Hizbollah militants across the border on Wednesday morning after at least two rockets fired by Hizbollah militia hit northern Israel, wounding four Israelis.

In addition, Israeli tankers shelled Hizbollah strongholds and military aircraft pounded bridges and a power plant in southern Lebanon.

Hizbollah's al-Manar TV reported that two Lebanese civilians were killed and several others wounded in an Israeli air strike, adding that seven Israeli soldiers were killed and at least eight others injured in the clashes.