Speaking defiantly in an audiotape on Hezbollah's Al-Manar television less than an hour after missiles destroyed his headquarters and home, Sheik Hassan Nasrallah addressed himself to Israelis and said they must take responsibility for their actions.
"You wanted an open war, and we are heading for an open war," he said. "We are ready for it."
Meanwhile, Israeli rescue services said a mother and her daughter were killed in a rocket strike on northern Israel on Friday.
Israeli warplanes smashed runways at Beirut's airport with hours of airstrikes, trying to render it unusable, and destroyed mountain bridges on the main highway to Syria. Warships blockaded Lebanon's ports for a second day.
As attacks on both sides continued, Nasrallah vowed to inflict more damage on Israel.
"The surprises that I have promised you will start now. Now in the middle of the sea, facing Beirut, the Israeli warship that has attacked the infrastructure, people's homes and civilians, look at it burning," Nasrallah said.
"It will sink and with it will sink scores of Israeli Zionist soldiers. This is just the beginning," he warned.
The warship was hit off the Lebanese coast by an unmanned Hezbollah aircraft rigged with explosives, military officials said.
The attack indicated that Hezbollah has added a new weapon to the arsenal of rockets and mortars it has used against Israeli troops. The army said the warship was lightly damaged in the attack, though the Arab satellite channel Al-Jazeera reported the Israeli military was searching for four missing sailors.
The military officials spoke on condition of anonymity because they weren't authorized to speak to the media. The army spokesman's office would say only that the cause of the attack was still under investigation. Hezbollah has managed to fly unmanned spy drones over northern Israel at least twice in recent years.
Immediately after Nasrallah's message was broadcast, Arab television showed nighttime video of what it said was the Israeli warship burning. But the video was unclear.
The audiotape came shortly after Israeli missiles struck Hezbollah headquarters and Nasrallah's house in southern Beirut. His comments, however, apparently were prerecorded, and Nasrallah did not refer to the missile attack on his offices and residence.
In other developments:
At the southern end of Gaza, hundreds of Palestinians poured into the Gaza Strip from Egypt on Friday after militants blew a hole in the border wall. The border has largely been closed since June 25, when Palestinian militants carried out a cross-border raid on a military outpost, killing two Israeli soldiers and capturing one. Hundreds of people have been stranded on the Egyptian side of the border, unable to get to their homes in Gaza.