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Lebanon's Hezbollah leader has rejected what he calls U.S. conditions for mediating a border and maritime dispute with Israel.

Hassan Nasrallah says Washington is "using the talks" to discuss degrading his group's capabilities, bringing up an Israeli claim that Hezbollah has precision missiles factories.

Nasrallah, speaking at a rally late Friday, acknowledged his group has the weapons but denied his group produces them.

He threatened for the first time, however, that his group may consider setting up such factories if Washington continues to use the talks on border demarcation to discuss his group's capabilities. He said it is Lebanon's right to defend itself.

A U.S. official has been shuttling between Israel and Lebanon, technically still at war, to settle the dispute. Washington considers Hezbollah a terrorist group.