Israelis on Thursday watched as their arch-enemy Iranian President Mahmoud Ahmadinejad addressed a rally near the border with their country, which he has repeatedly said should cease to exist.

Ahmadinejad, who is on a two-day trip to Lebanon, toured its southern border region in a show of support for the Shiite militant group Hezbollah that was slammed by the United States and Israel as "provocative."

The heavily guarded border is often seen as the front line in a proxy war between Israel and Iran, and Ahmadinejad is deeply reviled in Israel for his questioning of the Holocaust and predictions of the country's demise.

On Thursday he told a crowd in Hezbollah's south Lebanon bastion of Bint Jbeil, some four kilometres (two miles) from the border: "The occupying Zionists today have no choice but to accept reality and go back to their countries of origin."

Israeli Prime Minister Benjamin Netanyahu dismissed Ahmadinejad's comments.

"The best response to the hateful verbal aggression from across the border was given here 62 years ago," he said in a speech in Tel Aviv, referring to the creation of Israel in 1948.

Earlier, foreign ministry spokesman Yigal Palmor called Ahmadinejad's visit "provocative and destabilising."

"It appears his intentions are blatantly hostile and he is coming to play with fire," he told AFP.

It is "like a landlord visiting his domain," Palmor said, while another official said the move signified the final transformation of Israel's northern neighbour into an "Iranian client state."

Ahmadinejad came the closest he has ever been to Israel, addressing a rally of some 15,000 people just four kilometres (little more than two miles) from the border at Bint Jbeil, a Hezbollah bastion devastated during the 2006 war.

The sharp-tongued Iranian leader also visited the village of Qana, targeted in 1996 and again in 2006 by deadly Israeli air strikes.

Around a dozen Israeli ultra-Orthodox and Druze protesters gathered on the border ahead of the visit and released hundreds of blue and white balloons, which promptly blew backwards into Israel.

"I came here despite the fact that the government's position is to ignore this visit," said Ayoub Kara, a Druze MP from the governing right-wing Likud party.

"I want to send a message from here to Ahmadinejad, a message from the Koran, and that message is to pursue peace."

Nissim Fadid, an ultra-Orthodox Jew, also addressed the Iranian leader.

"Stop with your threats. We want peace, but we are not afraid of anyone that wants to drive the people of Israel from their land that God has promised them," he said.

Reporters gathered near the border could see a golden-domed building decked with flags in the distance on the Lebanese side.

For some, the presence so close of Israel's arch-foe was seen as a unique opportunity not to be missed.

"Human history would have been so different if in 1939 a Jewish soldier could have killed Hitler," Arye Eldad, an MP from the ultra-nationalist National Union party, said earlier this week.

"If Ahmadinejad is in the IDF's (Israeli Defence Forces) crosshairs for even one second... he can't be allowed to return home alive," he told the Ynet news website.

Senior cabinet minister Silvan Shalom dismissed such talk.

"We don't murder heads of states, even if those states are totalitarian states who seek to harm the state of Israel," he told public radio.

Analysts said it was unlikely Israel would be intimidated by the visit.

"It's clearly a provocation and it's not pleasant for Israel," said Eldad Pardo, an Iran analyst at the Hebrew University in Jerusalem. "But there is no panic. They also see the opposition inside Lebanon."

Ahmadinejad's visit is seen as a boost for Iran's Lebanese ally Hezbollah, which fought a devastating 34-day war with Israel in 2006.

Hezbollah fired thousands of rockets, many allegedly supplied by Iran, into northern Israel. During the conflict some 1,200 people in Lebanon, most of them civilians, and around 160 Israelis, most of them soldiers, were killed.

Iran has been a major donor for the reconstruction of southern Lebanon following the month-long war.