Israel and its arch foe Hezbollah are waging an increasingly heated war of words, fanning concerns about another bruising encounter between the two enemies who fought a devastating but inconclusive conflict in 2006.

In a keynote speech Friday night marking the third anniversary of that war's end, Hezbollah chief Sheikh Hassan Nasrallah outlined his strategy for Lebanon to deter Israel from launching another offensive. Responding to Israeli threats to flatten southern Lebanese villages and infrastructure, he vowed to attack Tel Aviv if Israel targeted Beirut or its southern suburbs, where Hezbollah's headquarters are.

"We are now capable of attacking any city or village throughout Israel," he said, dismissing recent Israeli threats against Hezbollah as psychological warfare. "When Israelis talk a lot, it means that they will do nothing. However, when they are silent like a snake we have to be cautious." Nasrallah's comments, delivered via a live video feed to a crowd of flag-waving supporters and invited politicians, were the latest in a month-long barrage of threats from both sides of the Lebanon-Israel border.

The saber-rattling, touched off in mid-July by explosions near an alleged Hezbollah weapons cache here in the hills of south Lebanon, seems driven more by a fear that the other side will take action, than a desire to launch a fresh round of fighting, say analysts and United Nations peacekeepers here.

"Contrary to the talk, the situation on the ground in our area of operations is generally quiet," says Milos Strugar, senior advisor to the UN peacekeeping force known as UNIFIL, which patrols the southern Lebanon border district. "In our contacts with all the parties, they reiterate to us their interest in upholding the cessation of hostilities."

Israel fears retaliation for assassination

That Israeli media has reflected concerns that Hezbollah may be planning an attack against Israel in revenge for the slaying of Imad Mughniyah, the group's top military commander, in a car bomb assassination in Damascus in February last year. There was no claim of responsibility for the assassination, but Hezbollah has blamed Israel. There have been reports over the past year of foiled revenge attacks against Israeli targets in Central Asia and Africa.

The warnings have cast a cloud over what has been a bumper summer tourist season for Lebanon with more than 1 million visitors recorded in July in a country with a population of only 4 million.

On Thursday, Israeli President Shimon Peres called Hezbollah a "curse" and accused it of "destroying" Lebanon and "bringing calamity" upon the Lebanese through its subservience to Iran.

Last week, Israeli Defense Minister Ehud Barak said that in the next war Israel would bomb Lebanese infrastructure. Sheikh Hisham Safieddine, a top Hezbollah official, responded that if Barak commits a "foolish act" in Lebanon, the next war would make the 2006 conflict "look like a joke."

Hezbollah, meanwhile, has made little effort to disguise the fact that it has rearmed and expanded its military capabilities in anticipation of a fresh conflict.

Hezbollah No. 2: We're stronger than in 2006

In a recent interview with the Monitor, Sheikh Naim Qassem, Hezbollah's No. 2, said the group has absorbed and implemented the lessons learned from the 2006 war and has been "getting ready and prepared in case Israel launches an aggression against us."

"This is the shape of the Resistance at this stage," the white-turbaned cleric said. "Hezbollah is in a better condition than it was in July 2006. And if the Israelis think they will cause more damage against us, they know that we also can inflict more damage on them."

Danny Ayalon, Israel's deputy foreign minister, on Sunday expanded the geographical scope of the threats.

"If, God forbid, one hair falls off the head of any Israeli representative abroad, or of even an Israeli who is not an official representative, tourists etc., we will consider Hezbollah responsible," he said.

It is not the first time both sides have engaged in a flurry of cross-border threats, however.

"We have witnessed many times Israeli threats and Hezbollah counter threats and then nothing happens," says Amal Saad-Ghorayeb, a Lebanese expert on Hezbollah.

Active weapons cache sparked saber-rattling

Tensions began to mount in mid-July when a series of powerful explosions shook this village set among steep hills in south Lebanon, 10 miles north of the border with Israel. The explosions emanated from a suspected Hezbollah arms cache in the basement of a two-story building on the side of a valley outside Khirbet Silm.

UNIFIL counted up to 60 separate blasts that caused extensive damage to the building, hurled unexploded ordnance up to 200 yards away, and sparked a brush fire on the valley slopes.

The explosions hardened a long-standing Israeli belief that Hezbollah has been stashing weapons in southern Lebanese villages in contravention of UN Resolution 1701. The resolution, which helped end the 2006 war, forbids "any armed personnel, assets and weapons" in the southern border zone other than those of the Lebanese state and UNIFIL.

Hezbollah said that the blasts were caused by an old stock of Israeli munitions left over from the 2006 war, and noted that Israel flouts Resolution 1701 on a near daily basis by flying jets and reconnaissance drones in Lebanese airspace – actions the UN has repeatedly criticized.

Exclusive details from forthcoming U.N. report

The Monitor has learned that the preliminary findings of a UNIFIL investigation into the incident, which is expected to be completed next week, concludes that the arms were generally old and had been stored there before the 2006 war. They included large quantities of 60mm, 81mm, and 120mm mortar tubes and rounds, a few 107mm Katyusha rockets and heavy machine gun rounds – all of which are used by Hezbollah. The cache additionally included old Israeli 155mm and 152mm artillery shells. Hezbollah does not possess artillery capable of firing those shells.

Still, UNIFIL found evidence that the facility was being guarded by Hezbollah militants, who control the surrounding area. Among the debris in the building, according to a UNIFIL officer, were mattresses, a military boot, a forklift truck for loading pallets of ammunition, a flatbed truck, and a sports utility vehicle.

In the past three years, UNIFIL on many occasions has discovered and removed old munitions, such as mortar shells and rockets, abandoned by Hezbollah after the 2006 war in rugged valleys along the border. But the incident in Khirbet Silm is the first evidence of an active arms cache in the UNIFIL area.

"The difference between the previous findings of arms is that this was, according to preliminary reports, an actively maintained ammunition depot," UNIFIL's Strugar says, adding it was a "serious violation" of Resolution 1701.