Hezbollah is playing brinksmanship and counting on the Israeli response to be less than effective. In my opinion, Israel could end this whole situation and buy some serious quiet time by launching a determined and effective series of overwhelming attacks on targets (human and otherwise) in Syria, Lebanon and Gaza. I don't, however, seen any indication that this is going to happen.
With hezbollah reaching 18 miles to Haifa, the Israeli army must occupy the Lebanese countryside at least 18 miles plus in order to protect its cities. I belive the previous range of the katusha rockets was 7 - 9 miles. Israel will have no other options.