Israel has retaliated to the capture of two Israeli soldiers by Hezbollah militants in Lebanon sending shockwaves throughout the Middle East and raising concerns in the West that the situation is fast getting out of hand.

On Wednesday, two Israeli soldiers were captured, eight killed and two injured in a Hezbollah ambush. A few weeks earlier, in Gaza, an Israeli soldier was captured by Palestinian militants, including the military wing of Hamas. Israel’s army response was fierce, expected and certainly within its rights to defend itself against external aggression.

However, there is growing concern that Israel’s bloody incursions into both Gaza and Lebanon is allowing the government to pursue a wider strategic goal: to neutralise the two guerrilla groups.

The political and military canvas in the Middle East changes shape even more when the war in Iraq and the fears surrounding Iran’s nuclear ambitions are taken into consideration. This crisis shows, yet again, how the conflict between the Palestinians and the Israelis is able to destabilise their neighbours.

The violence – the heaviest Israeli air campaign against Lebanon in two dozen years and the relentless two-week-old pounding of the Gaza Strip that has already killed more than 60 people – has taken on a life of its own.

Hamas and Hezbollah hope to exchange the captured Israeli soldiers for three Lebanese and at least some of the 9,000 Palestinian prisoners held in Israel. Israel sees its incursions as an opportunity to stop Gaza militants’ incessant rocket fire at southern Israel and to push Hezbollah guerrillas away from its northern border.

Israel’s desire to exact a price for militant violence and militants’ insistence on a prisoner swap likely means that the captured soldiers – Gilad Shalit, 19, Ehud Goldwasser, 31 and Eldad Regev, 26 – won’t be coming home any time soon.

A prisoner swap with Hezbollah may eventually take place, as it has in the past, but only after there is a revision of the Hezbollah military status in Lebanon.

Israel withdrew from southern Lebanon in 2000 after an 18-year occupation. Hezbollah quickly moved in to fill a power vacuum there as Israel focused its attentions on combating a new Palestinian uprising, or intefadeh, that broke out that same year.

For the next six years Israel avoided having to fight on two fronts, allowing an uneasy strategic balance to take shape on its northern border, with only occasional outbreaks of fighting with Hezbollah.

All that changed on Wednesday. Israel wants Hezbollah out of southern Lebanon. But Israel is reluctant to carry out the prolonged ground offensive that would likely be needed to drive them out, and its long history of ill-fated occupations of Arab lands makes a lengthy military campaign in either Gaza or Lebanon less likely.

What’s off Israel’s agenda is as significant as what’s on it. The dual crises in Gaza and Lebanon have all but killed what was until recently Israeli Prime Minister Ehud Olmert’s top policy initiative: to withdraw from most of the West Bank in order to ensure a long-term Jewish majority for Israel.

A lengthy campaign may not be on Israel’s drawing board, but its incursion into Lebanon raises fears of an all-out, new regional war.

Syria – which supports Hezbollah and plays host to Hamas’ political leader Khaled Mashaal – may be Israel’s next target, although highly unlikely in the absence of a provocation.

The fact that Israel is responding to militant attacks, as well as international concerns about Hezbollah’s activities in southern Lebanon, have muted world criticism of Israel’s actions. However, the mounting civilian toll can very easily become a major stumbling block to this whole operation.

Will the Americans intervene diplomatically? Perhaps, if it gets too bad. But Israel’s calculation appears to be that, in the post-11 September 2001 world, with the US very tied up in Iraq, it has time on its side.

Western leaders have called for restraint while the UN security council yesterday had an urgent meeting to discuss the crisis. Whatever pressure is exerted on Israel, the Palestinians or Lebanon, to cease fire, from now on the risks for the region are considerable.