The Home Office in London said Wednesday it has included the entire military wing of Hezbollah on its terrorism blacklist, which still needs to be endorsed by parliament, and outlawed affiliation, raising funds or encouraging support for it.

"Hezbollah's military wing is providing active support to militants in Iraq who are responsible for attacks both on coalition forces and on Iraqi civilians, including providing training in the use of deadly roadside bombs," said junior Home Office minister Tony McNulty in his announcement.

He added that the group's armed wing was also providing support for "Palestinian terrorist groups in the Occupied Palestinian Territories, such as Palestinian Islamic Jihad," which is already blacklisted in London.

For these reasons, the official said, the government has decided to expand its ban on Hezbollah's "external security organization" to cover the entire military branch.

"Proscription of Hezbollah's military wing will not affect the legitimate political, social and humanitarian role Hezbollah plays in Lebanon, but it sends out a clear message that we condemn Hezbollah's violence and support for terrorism," McNulty said.

A British diplomat claimed there was abundant intelligence evidence that Hezbollah militants were directly involved in training anti-occupation Iraqi militias to fight the U.S.-led foreign forces in the country, and in coordination with Iran. He said a prominent Lebanese Hezbollah figure had been arrested in Iraq last year.

In a televised address on Wednesday, Hezbollah Secretary-General Hassan Nasrallah brushed aside the decision, saying it was "not a surprise, coming from a state that established the Zionist entity."

He was referring to the British promise to give the Jews a homeland in Palestine early in the 20th century.

Stressing that the fighters of the resistance are "not terrorists," Nasrallah added, "Every time a decision is made by the colonialists regarding the resistance movements, we see it as an honor for us."

He said the timing of the decision was "suspicious" after significant progress has been made in a new deal to swap prisoners with Israel.

Meanwhile, a source close to Hezbollah told the Middle East Times that although London had excluded the group's non-fighting branches from its terror blacklist, London was coming closer to the U.S. administration's position that considers the entire organization as a terrorist one.

The source, speaking on condition of anonymity, argued that the British government was seeking to set a precedent to encourage the rest of the European Union to follow suit in order to add pressure on the organization to pacify it.

The EU has not labeled Hezbollah as a terrorist organization.

The Lebanese source described the decision as a "clever move" to eliminate armed resistance against Israel, particularly that Hezbollah is widely praised in the Arab world as the most effective resistance movement that succeeded in liberating southern Lebanon in 2000 and waged fierce battles in the 2006 war with Israel.

Middle East pundits say that Hezbollah's fighting abilities and successful guerilla warfare tactics, in which it has captured Israeli soldiers, has enabled it to secure the release of Lebanese, Palestinian and other Arab prisoners held in Israeli jails in several exchanges in the past years.

The Israeli government this week agreed to another prisoner swap with Hezbollah that would entail the release of the remaining Lebanese prisoners and an unknown number of Palestinians in return for two Israeli soldiers, presumed dead.

They were captured in a cross-border operation in July 2006, sparking the 34-day war that killed more than 1,000 Lebanese. The exchange, mediated by the Germans, is expected to take place this month.

While British officials deny any political motivations behind the decision, Arab commentators say that by excluding the ban on Hezbollah as a political group – which has substantial influence in Lebanon and is to be part of the new government in-the-making – the move is bound to add pressure on the Iran-backed group to give up its arms in line with an international resolution.

Hezbollah has resisted domestic and Western pressure to put down its weapons until the Shebaa Farms, a small piece of land, is liberated from Israeli occupation.

When the former pro-Western Lebanese government outlawed Hezbollah's telecommunication network in May, Hezbollah saw it as an attack on its resistance movement and unleashed its gunmen in west Beirut, taking over much of that area after clashing with rival pro-government militias.

The crisis ended with the Doha accord, in which all the rivals agreed to discuss the issue of the group's weapons, as well as other militias, in a national dialogue headed by President Michel Suleiman, but after forming a new government and endorsing a new electorate law.

Lebanon's pro-Western Lebanese parties are seeking to disarm Hezbollah in a "strategic defense plan" that would absorb its fighters and weapons within the national army, hoping to retrieve Shebaa through diplomacy.