Speaking after talks in Israel with Kofi Annan, the UN secretary-general, Ehud Olmert said the blockade would end only when key parts of UN Security Council resolution 1701 had been effected.
These include the deployment of international forces and Lebanese troops on Lebanon's borders to prevent weapons flowing from Syria to Hezbollah, he said.
Resolution 1701 also calls for the deployment of 15,000 UN peacekeepers by November 4, alongside Lebanese army forces.
At present the force size stands at around 2,500, but 800 Italian troops are due to arrive in Lebanon on Friday, with about 900 French troops to follow in September.
"Israel will pull out of Lebanon once the resolution is implemented," Olmert said.
He also demanded the release of two Israeli soldiers, a condition also included in the resolution, whose capture on July 12 by Hezbollah fighters sparked the conflict.
Shimon Peres, Israel's vice-president, also said after a subsequent meeting with Annan that Israel was not looking for "a blockade for sake of blockade" but wanted to be sure that Hezbollah would not re-arm.
Annan said on Tuesday that the blockade was causing "humiliation and infringement on [Lebanon's] sovereignty", and suggested it be lifted "as soon as possible in order to allow Lebanon to go on with normal commercial activities and also rebuild its economy".
Fuad Siniora, the Lebanese prime minister, had expressed hope on Wednesday that the blockade could be lifted "in the next few days".
He also said the Lebanese government planned to pay $33,000 compensation to each family whose home was destroyed in southern Lebanon during the war between Israel and Hezbollah.
However, Siniora rebuffed comments from Israeli officials and Annan that implementation of the UN resolution would bring about a "durable peace" between the two countries.
"Lebanon will be the last Arab country that could sign a peace agreement with Israel"
Fuad Siniora, Lebanese prime minister
"Lebanon will be the last Arab country that could sign a peace agreement with Israel," he said.
About 1,100 Lebanese, mainly civilians, have been killed in the conflict, while more than 150 Israelis, mainly soldiers, died during the offensive or in rocket attacks by Hezbollah on northern Israel.
Meanwhile Jesse Jackson, the US civil rights activist currently visiting the region to mediate a prisoner exchange between Israel and Hezbollah, told Israeli media on Wednesday that he had been assured by the Shia militia group that the two captured soldiers were alive.
However, a Hezbollah politician said that the two men would be released only as part of a prisoner exchange with Israel.