Hizbollah has the support of the Shia Arab population in Lebanon. Shia comprise about 35 percent of Lebanese. While there are other Shia factions, Hizbollah has the most street cred. That's because Hizbollah got declared the victor (in Arab minds) when Israel withdrew from their south Lebanon security zone (to prevent Hizbollah rockets from threatening northern Israel) in 2000. Israel left because the constant skirmishing with Hizbollah was getting a few Israeli soldiers killed each year, and this was becoming politically unacceptable within Israel. So the UN brokered a deal for the Israeli withdrawal. But Hizbollah declared the withdrawal a military victory over Israel. This made Hizbollah heroes in the eyes of Lebanese Shia, and other Arabs in general.
While part of that 2000 deal for Israel to withdraw from southern Lebanon included the Lebanese army taking control of the border, Hizbollah kept control of southern Lebanon for itself. Hizbollah is safe in the knowledge that the rest of the world will forget that part of the deal. The other Lebanese were not happy with Hizbollah retaining control of southern Lebanon, but did not want to start another civil war by trying to disarm Hizbollah (another part of the UN withdrawal deal that was ignored and forgotten, by everyone except Israel.)
Therefore, Hizbollah can always hide among the Lebanese Shia population, which is willing to protect, or at least hide, their heroes. That might not work, because there are only 3.8 million Lebanese, and only 1.3 million Shia. But Hizbollah has other allies outside the country.
In addition to it's major sponsor, Iran, Hizbollah can also rely on Syria (run by a Shia minority, and propped up by Iran). But Hizbollah's biggest ally is world media, European public opinion, and Hizbollah's ability to portray itself as the victim. While Hizbollah has made no secret of its goal of destroying Israel (as has Iran), Hizbollah has cleverly set up its defenses in southern Lebanon so as to maximize civilian casualties if Israel ever attacked. For example, when thousands of rockets were brought in from Iran (via Syria) over the last six years, they were stored in special rooms or basements in schools, Mosques and homes. Civilians were given no choice in this matter, and many Shia in the south were proud to help house weapons to be used against Israel. Fewer of these civilians were willing to get killed when Israeli bombs or artillery shells came to destroy these rockets. Israel knew what Hizbollah was doing, and that's why Israel did not go after the rockets until now. To bomb the rocket supplies would have killed civilians, and without a Hizbollah attack on Israel, the PR and diplomatic backlash would have made such attacks too costly.
But Hizbollah is calculating that enough dead Lebanese civilians will cause European nations, and even the UN, to lean on Israel (perhaps even an embargo) and force a halt to the bombings. Hizbollah could even halt its rocket attacks, for a while anyway, and declare another victory. The two captured Israeli soldiers would never be surrendered except for hundreds of imprisoned terrorists. If Hizbollah gets enough world public opinion on their side, even this proposed trade will be seen as "reasonable", and Israel will be condemned for refusing to go along.
Hizbollah does have some risk exposure. For example, Israel could get lucky, (or Hizbollah gets sloppy), find where the two captured soldiers are, and rescue them. Israel could also reestablish their security zone, and convince the Lebanese government that they could only get that back if the Lebanese army came in and replaced Hizbollah. The Lebanese could pull that off, by promising (secretly) Hizbollah that they could return and continue to operate against Israel.
The Lebanese are also villains in all of this, as it was their unwillingness to disarm Hizbollah, and take charge of the border, in violation of the UN agreement, that made it possible for Hizbollah to attack Israel. The UN is also at fault, for not doing anything in six years to see that the 2000 agreement was carried out. Hizbollah knows they are not going to destroy Israel this time around, but are pretty much assured of another propaganda victory.
The UN is talking about sending in peacekeepers, but they have had several thousand peacekeepers along the border for decades. The problem is that the peacekeepers have no authority to do anything about Hizbollah, or any other terrorists. It's unlikely that any nation would be willing to supply peacekeepers for a force that could go after Hizbollah. That would be a nasty fight, with all manner of bad publicity. Everyone knows Hizbollah is good at spinning the media, and doesn't want to be on the wrong end of such spin.
So, despite the moral, military and intelligence advantages of Israel, Hizbollah is confident that growing European anti-Semitism (and anti-Israeli attitudes), media willingness to portray Hizbollah as a victim, and Lebanese unwillingness to do anything that would risk another civil war (the last went from 1975 to 1990), they can survive anything the Israelis throw at them, and come out a winner (in the minds of Arabs, at the very least).
Hizbollah appears to have a lot of confidence in their ability to use Information War techniques to foil any Israeli attempt to defeat them. While the Israelis have overwhelming military superiority, Hizbollah has some serious assets of its own. For example;