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Israel said Tuesday it killed a senior Hezbollah militant responsible for drones and missiles, even as it freed Lebanese prisoners as a "goodwill" gesture to the country's new president.

Despite a ceasefire between Israel and Hezbollah, Israel has continued to carry out air strikes in Lebanon, claiming they are necessary to prevent the Iran-backed militant group from rearming or re-establishing a presence along its northern border.

"Earlier today, the IAF (air force) conducted a precise intelligence-based strike in the area of Nabatieh in southern Lebanon, eliminating Hassan Abbas Ezzedine, the head of Hezbollah's aerial array in the Bader regional unit," the military said in a statement.

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It said it carried out a second strike on Tuesday in the Froun area, targeting several militants.

"Several terrorists were identified in a site used by Hezbollah in the area of Froun in southern Lebanon," the military said. "An IAF aircraft struck the suspects."

Lebanon's official National News Agency reported that two people were killed in the Israeli strikes.

"An enemy Israeli drone strike targeting a car on the Deir El-Zahrani road resulted in one fatality," the news agency said, citing the health ministry.

It later reported that a second person was killed in an Israeli air strike on a vehicle in the Froun area.

Although a truce reached on November 27 largely ended more than a year of hostilities — including two months of full-scale war in which Israeli ground troops crossed the border — Israel has continued to launch periodic strikes in Lebanese territory.

Israel was initially expected to withdraw from Lebanon by February 18, after missing a January deadline, but it has maintained a presence in five strategic locations.

The ceasefire also required Hezbollah to pull back north of the Litani River, about 30 kilometres (20 miles) from the border, and to dismantle any remaining military infrastructure in southern Lebanon.

- Border disputes -

In a separate development on Tuesday, Israel announced it had agreed to release five Lebanese citizens detained during its war with Hezbollah.

"In coordination with the United States and as a gesture to Lebanon's new president, Israel has agreed to release five Lebanese detainees," a statement from Prime Minister Benjamin Netanyahu's office said.

Lebanese President Joseph Aoun's office said four of the prisoners had been freed on Tuesday and the fifth would follow on Wednesday.

Their release followed a meeting earlier Tuesday in the Lebanese border town of Naqoura, attended by representatives of Israel, Lebanon and mediators France and the United States.

"During the meeting, it was agreed to establish three joint working groups aimed at stabilising the region," the prime minister's statement said.

"These groups will focus on the five points controlled by Israel in southern Lebanon, discussions on the Blue Line and remaining disputed areas, and the issue of Lebanese detainees held by Israel."

The Blue Line is the UN-patrolled demarcation line that has served as de facto border since 2000.

In an interview with Lebanese news channel Al Jadeed, US Deputy Special Envoy for the Middle East Morgan Ortagus emphasised Washington's efforts to resolve the border issue.

"We want to get a political resolution, finally, to the border disputes," Ortagus said.

"When it comes to the border agreement, the land border agreement, there are 13 points -- I think that six are still problematic," she said.

Ortagus said Israel had "withdrawn from over 99 percent of the territory".

"I feel fairly confident that... we can have final resolution on the five points and ultimately on the remaining issues related to the Blue Line".

Financial markets are still reeling from this week's back-and-forth with the United States' key trade partners, as President Donald Trump announced and then almost immediately withdrew crippling new tariffs.

The Dow Jones Industrial Average closed Tuesday down another 478 points, down 1.1%. Trading on the S&P 500 closed after a decline of 0.7%, and the Nasdaq Composite was down 0.2%, for the worst day of trading since September according to Yahoo Finance. The stock market has been sliding amid fears that consumer spending would contract in response to tariffs Trump announced would be going into effect on Canada and Mexico in particular. While those tariffs have been reversed for now, Trump has indicated that 50% tariffs on imported steel and aluminum from Canada will still go into effect early Wednesday morning at midnight.

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Trump has attempted to boost investor confidence by walking back his previous comments to Fox Business' Maria Bartiromo in which he didn't rule out a recession happening as soon as this year. But Politico reported Tuesday that one of his top Cabinet secretaries may be "forced to take the fall," with "few friends in the administration" left to defend him.

According to the outlet, Commerce Secretary Howard Lutnick — who co-chaired Trump's presidential transition team along with former World Wrestling Entertainment executive Linda McMahon (now Trump's secretary of education) — could be out of a job if the fallout over Trump's tariffs continues to roil markets. One unnamed source "close to the administration" told Politico that Lutnick was lately "trying to be a mini-Trump."

“I don’t think he got the memo that only Trump gets to be Trump,” the source said. “It just reinforces that he doesn’t really know how to do the job.”

Politico additionally reported that administration officials are "growing increasingly frustrated" with the commerce secretary, complaining that he often gets "out in front" of Trump and has "contradicted his messaging." They add that he has "a lack of understanding of even the basics about how tariffs and the economy work."

Last week, Lutnick made headlines after telling CNBC that "prices are going to rise" as a result of tariffs, but that companies can avoid tariffs by making their products in the United States. When hosts reminded him that companies offshore production because labor costs are lower, Lutnick proclaimed that manufacturing jobs would be done by "robots."

Click here to read Politico's report in its entirety.