"There was a massacre in Srifa," Mayor Afif Najdi said.
Israel's strikes also included an attack in Achrafieh, a stylish Christian neighborhood in Beirut that is popular with tourists and upper-class Lebanese singles. Strikes in such areas have been rare thus far.
For the first time since the bombing began last week, Hezbollah fighters and Israeli troops clashed in ground battles along the Israeli-Lebanese border.
Two Israeli soldiers and one guerrilla were killed in the fights, the army said.
The deaths pushed Israel's military losses to 14 soldiers and sailors over eight days. At least two soldiers were hurt in the fighting, which broke out near the Israeli border farming community of Avivim, north of Safat, and continued for several hours.
Intense bouts of rocket fire, crashing missiles and shelling rendered the roads in Lebanon's borderlands impassable, a spokesman for the U.N. peacekeeping forces in Lebanon's south said.
Hezbollah guerrillas were setting up rocket launchers near U.N. positions, spokesman Milos Strugar said.
Three of the U.N. stations along the border had been hit by Israeli artillery, and the organization was unable to move desperately needed aid convoys onto roads that were coming under heavy bombardment, he said.
About half the civilian population remained in the south, Strugar said. Officials have warned that the villages are running out of food, and that babies are beginning to suffer from malnutrition.
"They are caught in the crossfire," Strugar said. "They have suffered a very heavy toll in terms of casualties and fatalities, and now this humanitarian crisis is developing."
In recent days, small contingents of Israeli ground forces have been operating along the frontier to demolish Hezbollah outposts and clear terrain, but there had been no large-scale movement of troops.
On Wednesday, the border zone began to show more signs of an Israeli military buildup. Tank carriers lumbered toward the frontier.
Israel has also begun calling up military reservists, an indication that it might be preparing to step up ground operations.
Lebanese Prime Minister Fouad Siniora appeared on Lebanese television to appeal yet again for relief.
"I call on you to respond immediately and without reservation to our call for a cease-fire," Siniora said, "and to provide urgent international humanitarian aid."
