United Nations secretary general Ban Ki-moon accused Israeli soldiers of using excessive force when they fired live ammunition at unarmed Lebanese demonstrators trying to breach a border fence.
But Mr Ban said a preliminary report by the UN peacekeeping mission in Lebanon also accused the demonstrators, who threw stones and petrol bombs and tried to bring down the fence, of carrying out "a provocative and violent act" on May 15.
The Lebanese Armed Forces said seven people died and 111 were injured in the protest marking the "nakba" or "catastrophe" - the term Palestinians use to describe their defeat and displacement in the war that followed Israel's founding on May 15 1948.
The incident took place near the border village of Maroun el-Rass and was the deadliest in the tense area since the Israeli-Hezbollah war in 2006.
The secretary general said both the Israelis and the Lebanese demonstrators, mostly Palestinian refugees, broke UN Security Council resolution 1701 that ended the Israeli-Hezbollah conflict, but he was especially critical of the Israeli use of live ammunition.
Mr Ban said the UN peacekeeping force, known as Unifil, estimated that around 8,000-10,000 demonstrators participated in the protest, the majority peacefully, but around 1,000 left the main gathering, crossed through a minefield, and moved towards an Israeli fence and the Blue Line, the UN-drawn boundary between the two countries.
"The firing of live ammunition by the Israeli Defence Forces across the Blue Line against the demonstrators, which resulted in the loss of civilian life and a significant number of casualties, constituted a violation of resolution 1701 and was not commensurate to the threat to Israeli soldiers," Mr Ban said.
Israeli mission spokeswoman Karean Peretz said: "We believe that the response to prevent such events lies with the countries from which the demonstrators are coming".
On June 5, when there were also protests along the Blue Line, she said "appropriate measures were taken (by Lebanese authorities) and no such provocations took place".
"These are not peaceful demonstrators," Ms Peretz said. "They are people trying to breach a country's sovereignty and we have a right to resist such provocations."
In Israel, there were media reports that the government had cancelled a visit and cut ties with UN special co-ordinator for Lebanon Michael Williams in response to the report.
UN associate spokeswoman Vannina Maestracci, in response to a question, said the secretary general was aware of the Israeli media reports.
"The secretary general stands by his conclusions and observations," Ms Maestracci said. "He stressed that the special co-ordinator for Lebanon Michael Williams enjoys his full trust and support as does the force commander of Unifil, General Alberto Asarta Cuevas."
Mr Ban also said there had been no progress in reaching a permanent ceasefire between Lebanon and Israel, in marking Lebanon's border with Syria, or in disarming Hezbollah and Palestinian militias, as called for in resolution 1701.