The children, aged nine to 15, were wounded by shrapnel when an artillery shell fell near their school in the village of Arab Salim, 4 miles northeast of the market town of Nabatiyeh, Lebanese officials said.
The children were rushed to a hospital in Nabatiyeh. At least three were in serious condition with wounds to their heads and faces, the Lebanese officials said.
Other children in the 400-pupil school were at first taken by teachers to sandbagged rooms that are used as shelters, then sent home.
"We heard the shelling but we did not care. This is part of our daily life in the south," said Ali Yussef Ibrahim, an 11-year-old student who suffered shrapnel wounds. He spoke from his bed in the Najda Hospital in Nabatiyeh.
The artillery shelling came from the Sweida outpost manned by Israeli troops and allied Lebanese militiamen, the Lebanese officials said. The outpost is just under 2 miles from the school.
The Israeli army said its allied South Lebanon Army militia outposts came under guerrilla fire Thursday morning from a residential area of Arab Salim, "making it necessary to fire back at the sources of the fire," a spokesman said in Jerusalem.
"The South Lebanon Army responded with artillery fire over the origins of the terrorists' fire," the spokesman said.
In the past, Israeli warplanes and artillery have pounded suspected guerrilla bases in a valley near Arab Salim.
Hizbollah, the main guerrilla force fighting to oust Israeli troops from the south Lebanon zone, said it had not launched any attacks in the area on Thursday. The guerrillas are backed by Iran and Syria and would likely be disarmed - like the Israel's proxy militia - in the event of a peace treaty.
In response to Thursday's firing, the Syrian-backed Shiite Muslim Amal movement said its guerrillas fired rockets and mortar shells at 14 Israeli and allied militia outposts in the occupied zone. There were no reports of casualties.
Thursday's hostilities came a day after two Lebanese civilians were injured inside the Israeli occupation zone during a burst of heavy fighting.
The escalating violence in the south, the last active Arab-Israeli war front, occurred as Syrian and Israeli negotiators resumed peace talks in Washington on Wednesday. The new violence appeared to signal the dominant Hizbollah guerrilla group's determination to continue fighting.
Israel and Syria are expected to discuss how to contain the violence in southern Lebanon before an Israeli military withdrawal from the occupied zone. Syria is the main power broker in Lebanon, where it maintains 30,000 troops.
The Iranian-backed Hizbollah guerrilla group launched attacks on several Israeli and mlmed militia outposts Wednesday.
Hizbollah is leading a guerrilla war to try to oust the 1,500 Israeli soldiers and the 2,500 Israeli-backed South Lebanon Army militiamen from the Israeli-occupied zone along Lebanon's southern border. Israel contends that the zone, set up in 1985, is necessary to shield its northern towns from cross-border guerrilla attacks.
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