"Our action is aimed at exchanging prisoners (in Israeli jails), we do not want to escalate clash or drag Lebanon and the region into war," Nasrallah told a press conference.

"But if the enemy (Israel) wants escalation, we are ready for it", Nasrallah added.

Hezbollah militants seized two Israeli soldiers when they attacked two Israeli army jeeps patrolling along the border with Lebanon Wednesday morning, demanding that Israel release prisoners held in Israeli jails in exchange for the two soldiers.

Nasrallah said the hostages will only be released through "indirect negotiations and an exchange of prisoners."

But Israeli Prime Minister Ehud Olmert refused to negotiate with the kidnappers on the fate of the soldiers, vowing to give a very painful and far-reaching response.

Seven Israeli soldiers and four Lebanese civilians were killed in the Wednesday clash.