Israel can end a conflict with Hizbollah in south Lebanon by agreeing to a prisoner exchange, the commander-in-chief of Iran's Revolutionary Guards said on Monday.

Israeli soldiers stand near a mobile artillery unit as it fires into southern Lebanon from its position near the town of Kiryat Shmona July 17, 2006. [Reuters]

The Revolutionary Guards are among Hizbollah's closest allies. Iranian Revolutionary Guardsmen joined their fellow Shi'ite Muslims fighting Israel in south Lebanon during the 1980s but Tehran insists it no longer deploys units there.

"Hizbollah announces now it is ready to end the war on the condition that the Israeli regime hands over Lebanese prisoners in its jails," Yahya Rahim-Safavi was quoted as saying by the conservative Kayhan daily.

Israel launched an offensive when Hizbollah seized two of its soldiers and killed eight others on Wednesday.

"If Israel wants peace and calm it should end the war and should exchange the prisoners but it seems Israel has an objective other than releasing the prisoners," he added.

"Israel's problem now is that it is fighting an invisible force because the Hizbollah resistance force has no barracks, no revealed army and everything about this force is concealed," Rahim-Safavi continued.

Israel's Lebanon campaign has killed at least 162 people, all but 13 of them civilians.

Israel has accused Hizbollah of using Iranian armaments in its latest attacks, a charge Tehran rejects.

An Israeli military source said on Saturday that what hit and badly damaged one of his country's ships was an Iranian-made C802 radar-guided land-to-sea missile.

Hizbollah says it has fired "Raad (Thunder) 2" and "Raad 3" rockets at Haifa. The "Raad" is an Iranian missile.

Although Iran funded and supplied Hizbollah during the 1980s, Tehran now insists its support is purely moral and the defence minister has denied supplying weapons.