Two sailors aboard the warship were killed and two others are missing. The warship returned to its home port in Haifa on Saturday, according to Israeli TV footage.
The army would not confirm if the ship was arriving, but the Saar 5-class missile ship, named the "Spear," could clearly be seen on television sailing into port.
The intelligence official, who spoke on condition of anonymity because of the sensitive nature of the information, said about 100 Iranian soldiers are in Lebanon and helped fire the Iranian-made, radar-guided C-102 at the ship that killed one and left three missing.
Initially, it was thought that Hezbollah used a drone to attack the ship. The Israeli intelligence official did say that Hezbollah does have drones and warned that they are more accurate than missiles.
"We can confirm that it was hit by an Iranian-made missile launched by Hezbollah. We see this as very profound fingerprint of Iranian involvement in Hezbollah," Brig. Gen. Ido Nehushtan said in an interview with The Associated Press.
Another Hezbollah missile also hit and sank a nearby civilian merchant ship at around the same time, Nehushtan said. He said that ship apparently was Egyptian, but he had no other information about it.
Nehushtan said the body of one of the four Israeli soldiers left missing by the attack on the warship was found aboard it, but other Israeli military officials said two bodies had been found.
Israeli officials warned Saturday that Hezbollah has missiles that could reach as far as 62-125 miles, into the country, putting cities such as Jerusalem and Tel Aviv at risk if the weapons are used.
A senior Israeli intelligence official, who spoke on condition of anonymity because of the sensitivity of the information, said that Hezbollah has 150 missiles that could reach a distance of about 28 miles, and another 20 with a range of 100-200 kilometers.
"They may hit Tel Aviv," the official said, adding that Israeli intelligence officials were not sure why Hezbollah has not used the missiles since it started firing rockets at Israel on Wednesday.
An army spokesman said that since Wednesday, more than 350 Katyusha rockets have been fired into Israel, including 40 on Saturday, and have killed four people and injured about 60.
In other developments:
Witnesses reported Saturday that Israeli helicopter gunships fired rockets toward the port area in Lebanon's northern city of Tripoli.
Also, Israeli warplanes repeatedly blasted Beirut's southern suburbs, causing a series of huge blasts, Hezbollah's Al Manar television reported.
The TV's correspondent said Israeli airstrikes targeted the Hezbollah stronghold of Haret Hreik, which has been attacked by Israeli jets for two days straight. Two major explosions echoed from the Haret Hreik neighborhood and reverberated across Beirut.
Earlier, at least 27 people were killed in South Lebanon when several cars were hit in Israeli air strikes. In northern Israel, rockets fell on the city of Tiberias, reports Berger.
Israel radio reported that tourists were leaving the city after the attack. Israel's Channel 2 television said that police with megaphones were going beach by beach urging bathers to seek shelter.
It was believed to be the first time since the 1973 Mideast War that Tiberias was hit by a missile. It is 22 miles south of the border with Lebanon.
Israeli medics said a second round of Hezbollah rockets hit Tiberias.
Israel launched its offensive after Hezbollah guerrillas crossed the Israel-Lebanon border on Wednesday and captured two Israeli soldiers. Israel has bombarded Lebanon's airport and main roads in the most intensive offensive against the country in 24 years, while Hezbollah has launched hundreds of rockets into Israel.
The intense fighting has sent shock waves through a region already traumatized by Israel's battle against Hamas militants in the Gaza Strip. With Israeli officials pointing fingers at Hezbollah's close allies, Syria and Iran, the crisis could soon spread even further.