After more than a week of punishing Israeli aerial and artillery strikes, Hizb'allah chief Hassan Nasrallah says his group is easily absorbing all that Israel has thrown at it, and continues to successfully control the direction of the current fighting.

In an interview with Al Jazeera, Nasrallah firmly denied Israeli reports that some 50 percent of Hizb'allah's fighting capabilities have been eliminated by the IDF, and said his group remains as strong as ever and is ready to unleash more "surprises."

"All of the reports of the Israelis, that they struck 50 percent of our capabilities, are not true. They didn't succeed up to now in hitting anything in this range. Hizb'allah up to now has stood firm, it is succeeding in absorbing the attacks, in returning its own attacks, and it will return more in the future."

He also said Israel had failed miserably in its effort to decapitate the Hizb'allah leadership when it dropped some 20 tons of bombs on a Beirut bunker Wednesday night.

"The Hizbullah leadership wasn't hit at all - not in yesterday evening's attack. There was a huge number of planes and they hoped they would hit us but it was wrong."

With its leadership and fighting capabilities intact, Nasrallah suggested it is Hizb'allah that is controlling the direction of this war.

DAY 8, BEIRUT -- At least 55 Lebanese civilians were killed as Israeli warplanes pounded the capital and countryside, making today the deadliest day in a week of attacks and pushing this country's civilian death toll to more than 300. Fearful Westerners fled the country in droves.Violence also struck northern Israel, where two children  were killed in a rocket attack in the town of Nazareth.

For the first time since fighting erupted last Wednesday, killing eight Israeli soldiers, Hezbollah fighters and Israeli troops engaged in a deadly border clash today. Two Israeli soldiers were killed and one guerrilla was killed, the Israeli army said. The clash took place near the Israeli border farming community of Avivim, north of Safat, and continued for several hours.

The deaths bring Israeli military losses to 14 soldiers and sailors over eight days, a toll comparable to those during the height of the Palestinian uprising, or intifada, that began in 2000.

In recent days, small contingents of Israeli ground forces have been operating along the frontier to demolish Hezbollah outposts and clear terrain, but there has been no large-scale movement of troops. However, the border zone began to reflect more signs of an Israeli military buildup. Tank carriers lumbered northward on roads heading to the frontier.

BEIRUT, 19 July (IRIN) - Lebanon's dream of 2006 as a record year for economic growth has in the space of a week turned into a nightmare. Israeli air strikes have brought its fast-growing economy to an almost complete standstill. With thousands of nationals and foreign workers evacuating, and more than 500,000 internally displaced people, a bleak scenario confronts the country's workforce. "The direct losses are estimated to be nearly half a billion US dollars," said Jihad Azoor, Lebanon's Finance Minister. "But we have to read this number carefully because we have no way of assessing the situation fully to get an accurate estimate. And more losses occur by the hour."

Azoor's estimate is considered very conservative, with financial analysts doubling the figure. "We have suffered at least $1 billion-plus of physical damage," says Nicholas Photiades, Head of Research at Beirut-based Blom Invest. "In addition, we have a huge social problem with thousands of homes being destroyed. All of this will need to be rebuilt eventually and will take time, which will add to the financial impact of these attacks." Photiades says morale among the Lebanese workforce is at an all-time low. Most non-essential employees are being asked not to come into work as their managers fear for their lives. Others, such as Photiades, are working half days but are struggling to motivate themselves.

"How can we develop strategies and business plans for the future when we don't really know what the political situation will be?" he asks. "In the banking and investment sector, a cornerstone of the Lebanese economy, uncertainty is very significant in preventing foreign investment."