Ehud Olmert vowed tonight to continue Israel’s offensive in Lebanon against Hezbollah, dashing any hopes of an end to the bloody three-week conflict that has left hundreds dead.

Speaking in Tel Aviv, the Israeli Prime Minister told supporters that military offensive would continue until three captured Israeli soldiers were released and the threat posed by Hezbollah rockets against cities in northern Israel was neutralised.

The speech, which came less than 24 hours after Israel appeared to agree a partial halt to its air campaign, left his country isolated internationally, but shored up his position at home.

The statement was also a huge blow to Tony Blair who had been optimistic that a deal at the United Nations could be agreed by all sides this week, followed by an immediate ceasefire.

Returning from her latest bout of shuttle diplomacy to the region, Condoleezza Rice, the US Secretary of State, admitted tonight that there was "a lot of work" left to do.

Governments around the world have called on Israel to scale down its attacks after Israeli artillery and aircraft yesterday destroyed a warehouse in Qana, southern Lebanon, killing 56 civilians, including 37 children.

The tough Israeli position today may also have killed off any hopes of a immediate diplomatic solution at the United Nations.

World powers were due to meet today to discuss the deployment of an international peacekeeping force for Lebanon to stabilise the border with Israel and monitor a truce.

But the meeting was postponed indefinitely and diplomats are now engaged in discussing the text of a draft resolution submitted at the weekend by France. No date has been set for serious negotiations.

Certainly no country will consider contributing peacekeeping forces after hearing Mr Olmert’s warning. "The fighting continues. There is no ceasefire and there will be no ceasefire in the coming days," said Mr Olmert, who was greeted with applause.

"We are determined to succeed in this struggle," he said. "We will not give up on our goal to live a life free of terror."

He said that Israel had acted against Hezbollah because it feared that the militant Shia Muslim group was amassing an arsenal that could threaten Israeli security.

"We could not let the terror organisation on our border get stronger, let them get more missiles," he said. "If we had held off, the day would have arrived soon when they would have caused unprecedented damage."

In southern Lebanon, Israeli commanders took advantage of two loopholes in the airstrikes agreement -- that Israel may still use aerial attacks to support ground operations and against Hezbollah personnel and rocket launchers -- to shell two villages and send soldiers across the border to the district of Aita Al-Shaab.

"There is an operation going on over there -- this is the first time troops have been in this area," an army spokesman said. Earlier, Israeli aircraft mistakenly bombed a car carrying Lebanese government troops, killing one officer and injuring three.

Elsewhere, Hezbollah fired Katyusha rockets at the Israeli town of Kiryat Shmona, and claimed to have crippled an Israeli armoured vehicle with an anti-tank round. Al-Manar TV, Hezbollah's broadcaster, said the group had managed to hit an Israeli warship off the coast near the city of Tyre, but this was denied by the Israeli military.

Despite the intermittent violence, a relative lull in Israeli airstrikes did allow thousands of Lebanese civilians to flee villages in the south where they have been pinned down for more than two weeks. In Beirut hundreds of people warily returned to the southern neighbourhoods of the city to see if their homes had been destroyed.

Aid agencies started the search for those killed during the fighting. The Lebanese Red Cross said it had found 28 bodies in three villages and along roads in the Jibbain and Klaileh region near the coast. So far, more than 577 Lebanese people, including 455 civilians have died since July 12. Fifty-one Israelis have lost their lives.

More than 200 people emerged from the cellars of Bint Jbail, a Hezbollah stronghold just inside Lebanon that has been devastated by the heaviest ground fighting of the 19-day conflict. Israeli forces withdrew from the town yesterday after suffering 18 deaths during a week-long siege.

A 73-year-old man, Mehdi al-Halim, picked his way through the rubble, saying: "I haven’t seen the sun for 20 days... We had no food, no water. Everyday we had only one candy each, one candy that is all. How much you eat in one day is how much we have eaten in 20 days."

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