BEIRUT (Reuters) - Lebanese have long viewed the Hezbollah guerrilla army as a state-within-a-state. But having watched it launch a military adventure in Syria and brutality on the streets of Beirut, they feel ever more hostage to the Islamist group’s regional agenda.

Hezbollah supporters attack a bus carrying anti-Hezbollah protesters in front of the Iranian embassy in Beirut June 9, 2013. REUTERS/ Stringer

Within minutes of a busload of unarmed demonstrators arriving on Sunday at the Iranian embassy in Beirut to protest against Iran and Hezbollah’s military involvement in Syria, Hezbollah enforcers surrounded the building and scattered the crowd with batons and gunfire, leaving one dead.

The small demonstration by an anti-Hezbollah crowd showed that the “Party of God”, armed and financed by Iran, is not prepared to contemplate even the smallest level of threat.

Such visibly frayed nerves in Lebanon’s capital follow the Shi’ite group’s dramatically increased involvement in the two-year-old Syrian civil war, helping troops loyal to President Bashar al-Assad retake the border town of Qusair.

Hezbollah’s involvement may have transformed the war into a sectarian contest, pitting Assad and his fellow Alawites, an offshoot of Shi’ite Islam, against mainly Sunni rebels, including al Qaeda groups fighting under the banner of the Nusra Front.

Western powers and Turkey have also rallied behind the rebels, despite misgivings over Islamist radicals in their ranks, while Russia has armed and diplomatically shielded Assad.

ALEPPO NEXT?

Building on battlefield gains that have swung the momentum towards Assad and Hezbollah, Syrian forces are preparing to retake Aleppo, which could be a decisive point in the war that has killed 80,000 and forced 1.6 million to flee abroad.

The move to a northern front comes as Syria’s war is increasingly infecting its neighbors - Iraq, Lebanon, Jordan and Israel - and widening the regional sectarian fault line between Sunni and Shi’ite Muslims.

“Syria has become an open battlefront for regional and international powers. It is an open stage for anyone who wants to fight,” said a politician close to the movement.

For the first time since the start of the uprising in March 2011, an Israeli minister suggested on Monday that Assad “might not just survive but even regain territories” from the rebels, an assessment which reflected the difficulties the West faces in predicting Syria’s fate and weighing intervention.

Alarmed by Assad’s advances and Hezbollah’s intervention, Washington might decide later this week on whether to start arming the rebels, a U.S. official said.

What has changed is Hezbollah entering the fray on the side of Assad to fight the rebels, while the Nusra Front has made Syria a magnet for foreign Shi’ite and Sunni fighters.

“Put aside the propaganda that we’re seeing from Hezbollah, the assault that is being prepared around Aleppo is a worry, be it in Washington, Paris or Riyadh,” one Western official said.

“We can have all the diplomatic wrangling in the world, but the most important element is the balance of power on the ground. That balance is changing.”

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“You have to weigh the risks,” the official said. “If you arm the rebels, there is a risk (arms) fall into the wrong hands, but if you don’t, then thousands more could get massacred and you’re left with Hezbollah versus Nusra. Which is the worst risk?”

That shift in power makes it less likely that a U.S. and Russian peace conference planned for July to bring the rebels and the government to the table can agree a negotiated political transition to remove Assad from power.

CAUGHT IN THE MIDDLE

Such changes in Western policy on Syria, allied to developments on the battlefield, leave Lebanon hanging by a thread.

In a country still emerging from the ashes of its own 15-year civil war, the sight of Hezbollah men rejoicing over the fall of Qusair or firing at protesters frightens many Lebanese.

Sunday’s killing of the protester in Beirut added to the list of grievances against Hezbollah among Lebanese, who once revered it as a resistance force above domestic politics.

“What we’re seeing is very dangerous: Armed clashes, the weakening of the state, the killing of a protester. It’s low intensity warfare,” said Fawaz Gerges, Professor of Middle Eastern Politics at the London School of Economics.

Lebanese columnist Sarkis Naoum said: “The (Hezbollah) state-within-a state already exists ... This shows that if they (Hezbollah) are challenged, they will go to the streets.”

“They (crushed) the protest so it won’t be repeated elsewhere.”

Angry comments dominated social media, showing a bloodied picture of the slain protester, Hashem Salman, a young Shi’ite from a bloc opposed to Hezbollah.

Displayed alongside were pictures of Hezbollah militiamen charging at the crowd with the caption: “The fascist assault and the peaceful protests.”

“Hezbollah has already lost a great deal of ground, not militarily, but if you lose popular support among independents and among the silent majority, you lose. This will haunt them eventually because there was no security threat,” Gerges said.

DEEP FAUTLINES

Hezbollah’s participation in the battle for Qusair is a turning point for the group, set up in Damascus by Iran in 1982 with the aim of fighting Israel after its invasion of Lebanon.

Hezbollah spearheaded the rise of Lebanese Shi’ites from an underclass to the most powerful faction in the country, forced Israel to end its 20-year occupation of south Lebanon, and formed a military front with Syria and Iran against Israel and the United States.

Now many Lebanese see Hezbollah leader Sayyed Hassan Nasrallah’s support for Assad against an insurgency dominated by Syria’s Sunni majority as a miscalculation that will drag Lebanon into the Syrian quagmire, exacerbate fighting in Lebanon itself and deepen Sunni-Shi’ite sectarian rifts in the region.

“The internal divide between Shi’ite and Sunni Muslims is as deep and as wide as the fault lines between Arabs and Israelis and that statement speaks volumes about the very violent and threatening storms that are brewing in Arab lands,” said Gerges.

No matter how this unfolds, Nasrallah’s prestige in the region is shattered. Long revered as the Arab hero who stood up to Israel, and among his own as the man who elevated Shi’ites to the top of Lebanese politics, he is now being portrayed as the protector of Syrian autocracy and a proxy of Iranian theocracy.

Already on Washington’s terrorism list for attacks against Israeli and U.S. targets, Hezbollah faces new sanctions from Western powers. Arab public opinion has become hostile, seeing the group as an offshoot of Iran’s Revolutionary Guards, more responsive to Iranian interests than Lebanese concerns.

Gulf Arab states have now pledged sanctions against Hezbollah members working in the Gulf.

While Hezbollah says it strives to maintain peace inside Lebanon, its intervention in Syria will add to pressures that threaten to fracture the fragile state and limit its ability to contain the growing threat from Sunni extremist groups.

NO RED LINES

The danger of Sunni reprisals could force Hezbollah to take greater control on the ground. Its move into Syria could also trigger another war with Israel, which has three times this year bombed what security sources said were convoys of Iranian missiles transiting Syria towards the Lebanese militia.

Hezbollah has said it will not be dragged into all-out sectarian war in Lebanon, where it is the most powerful militia.

Hezbollah’s adversaries are neither willing nor able to engage it on the streets of Beirut. The danger could come from al Qaeda groups in north and south Lebanon, who may retaliate against Hezbollah with suicide attacks, security sources say.

Politically, the war in Syria and rivalry between pro- and anti-Syrian parties have prevented Lebanon from forming a new government.

“There is a dangerous power vacuum. The military and Lebanese security forces are overstretched in Tripoli, the eastern Bekaa and elsewhere. In such a situation, Hezbollah has emerged as the dominant force as the power broker and the party that has military muscle, with a power base,” Gerges said.

The pro-Hezbollah politician said the party was in no mood to compromise. “Hezbollah has no red line. It will cross any line and take to the streets when it feels it is in danger.” He said politicians could “go to the ends of the earth but they won’t be able to form a government without its approval.”