Will latest fighting spark all-out war between Israel and Hezbollah?

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Israel and Lebanon's Hezbollah on Sunday launched their heaviest exchange of fire after months of strikes and counterstrikes that have raised fears of an all-out war.

By mid-morning, it appeared the exchange of fire had ended, with both sides saying they had only aimed at military targets.

The Israeli strikes killed three militants in Lebanon, while there were no reports of casualties on the Israeli side. But the situation remained tense. Here's a look at where things stand:

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What happened early on Sunday?

Israel says about 100 warplanes launched airstrikes targeting thousands of rocket launchers across southern Lebanon to thwart an imminent Hezbollah attack.

Hezbollah then said it launched hundreds of rockets and drones aimed at military bases and missile defence positions in northern Israel and the Israeli-annexed Golan Heights.

Hezbollah called the attack an initial response to the targeted killing of one of its founding members and top commanders, Fouad Shukur, in an Israeli airstrike in Beirut last month.

It said its military operations for Sunday were concluded, and that they would allow it to strike deeper into Israel in the future. It denied Israel's claim to have thwarted the attack, without offering evidence for its own claims.

Two Hezbollah fighters and a militant from an allied group were killed, and two people were wounded in the strikes on Lebanon. LIeutenant Colonel Nadav Shoshani, an Israeli military spokesman, said an initial assessment showed "very little damage" in Israel.

READ MORE: Israel and Hezbollah exchange heavy fire, raising fears of all-out regional war 

How likely is an all-out war between Israel and Hezbollah?

Sunday's exchange of fire did not set off a long-feared war, and the heavy firepower and lack of civilian casualties might allow both sides to claim a sort of victory and step back. But tensions remain high.

Hezbollah began firing rockets and drones at Israel shortly after the outbreak of the war in Gaza, which was triggered by Hamas' surprise attack into Israel on October 7.

Hezbollah and Hamas are allies, each backed by Iran. Israel has responded with airstrikes, and the near-daily exchanges have escalated in recent months.

More than 500 people have been killed in Lebanon by Israeli strikes since October 8, most of them fighters with Hezbollah and other armed groups but also more than 100 civilians and noncombatants. In northern Israel, 23 soldiers and 26 civilians have been killed by strikes from Lebanon. Tens of thousands of people have been displaced on both sides of the tense frontier.

Israel has vowed to bring quiet to the border to allow its citizens to return to their homes. It says it prefers to resolve the issue diplomatically through US and other mediators but will use force if necessary. Hezbollah officials have said the group does not seek a wider war but is prepared for one.

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What would a war between Israel and Hezbollah look like?

Israel and Hezbollah fought a month-long war in 2006 that left much of southern Beirut and southern Lebanon in ruins, and drove hundreds of thousands of people from their homes on both sides.

Everyone expects the next war to be far worse.

Hezbollah has an estimated 150,000 rockets and is capable of hitting all parts of Israel. It has also developed an increasingly sophisticated fleet of drones and has been experimenting with precision-guided missiles. A full-scale war could force hundreds of thousands of Israelis to flee, paralyse the Israeli economy and force the army, which is still engaged in Gaza, to fight on two fronts.

Israel has vowed a crushing response to any major Hezbollah attack that would likely devastate Lebanon's civilian infrastructure and economy, which has been mired in crisis for years. Beirut's southern suburbs, and towns and villages across southern Lebanon, where Hezbollah's main strongholds are located, would likely be flattened.

An Israeli ground invasion to root out Hezbollah could drag on for years. The militant group is far more advanced and better-armed than Hamas in Gaza, which is still putting up a fight after 10 months of intense Israeli bombardment and ground manoeuvres.

Would a war draw in the US, Iran and others?

An all-out war between Israel and Hezbollah could spiral into a region-wide conflict.

Iran is a patron of Hezbollah, Hamas and other militant groups in Syria, Iraq and Yemen. Iran has vowed to carry out its own retaliatory strike over the killing of Hamas' top leader, Ismail Haniyeh, in a blast in its capital last month that was widely blamed on Israel. Israel has not said whether it was involved.

Iran-backed groups across the region have repeatedly attacked Israeli, US and international targets since the start of the war in Gaza and could ramp them up in a bid to take pressure off Hezbollah.

The US, meanwhile, has pledged iron-clad support for Israel and moved a vast array of military assets to the Middle East in recent weeks to try and deter any retaliatory strike by Iran or Hezbollah. The USS Abraham Lincoln recently joined another aircraft carrier strike group in the region.

A US-led coalition helped shoot down hundreds of missiles and drones fired by Iran toward Israel in April in response to an apparent Israeli strike in Syria that killed two Iranian generals. Both sides downplayed an apparent Israeli counterstrike on Iran, and tensions gradually subsided.

What does this mean for Gaza ceasefire efforts?

The US, Egypt and Qatar have spent months trying to broker an agreement for a ceasefire in Gaza and the release of scores of hostages held by Hamas. Those efforts have gained urgency in recent weeks, as diplomats view such a deal as the best hope for lowering regional tensions.

Hezbollah has said it will halt its attacks along the border if there is a ceasefire in Gaza. It's unclear whether Hezbollah or Iran would halt or scale back their threatened retaliatory strikes over the killing of Shukur and Haniyeh, but neither wants to be seen as the spoiler of any ceasefire deal.

Despite the intense diplomacy, major gaps remain, including Israel's demand for a lasting presence along two strategic corridors in Gaza, a demand rejected by Hamas and Egypt. High-level talks will be held in Egypt on Sunday.