Israel/Lebanon: Israeli Defence Minister Amir Peretz said on Sunday Israel could accept a new NATO-led peacekeeping force in southern Lebanon to keep Hezbollah at bay, while Hezbollah has agreed to the Lebanese government dealing through a third party with Israel on a prisoner swap, Lebanon's parliamentary speaker Nabih Berri said.

In the meeting Amir Peretz said, "Israel's goal is to see the Lebanese army deployed along the border with Israel, but we understand that we are taking about a weak army and that in the midterm period Israel will have to accept a multinational force."

Lebanese security officials said Israeli troops still occupied a Lebanese border village, but appeared to be making no headway, however heavy artillery and warplanes continued to bombard the southern regions.

Earlier in northern Israel two civilians were killed by Hezbollah rocket fire, while in a separate incident, a member of the UN observer team was critically wounded by guerrilla fire in south Lebanon.

The Israeli Defense Minister described Israel's offensive as being "focused on limited entrances" saying, "We are not talking about an invasion of Lebanon. We are beginning to see the army's successes opposite Hezbollah."

According to Lebanese authorities the latest death toll is at least 375. Israel's total death toll so far is 36; including 17 people killed by Hezbollah rocket fire and 19 soldiers killed in fighting.

Speaking to journalists on Sunday Lebanon's parliamentary speaker Nabih Berri said that Hezbollah had accepted that Lebanon could  negotiate on a prisoner exchange as long as it was mediated by a third party.

A third party has not yet been named, but Lebanese Foreign Minister Fawzi Sallukh suggested the United Nations or any other mutual party, hinting at Germany to oversee talks for a prisoners' exchange as they have played such a role between Lebanon and Israel in the past, would suffice.

He said that the two soldiers were alive and well.