Chanting "Death to Israel", "We are all for our nation" and "God is great", they danced in the main square of Arnoun as Israeli soldiers fired over their heads to disperse them.
The students, Christian and Muslim, gathered from universities all over Lebanon to protest against Israel's takeover of Arnoun, outside the Israeli occupation zone, on 17 February.
The Israeli army says it was trying to protect residents and their soldiers from attacks by the Lebanese guerrilla movement Hizbollah.
The students, carrying Lebanese flags, cut the wire and moved in yesterday morning. An Israeli spokesman said there were no casualties and the demonstrators later left Arnoun.
Heavy shelling by Israeli artillery in the area has reduced the population of Arnoun from 2,000 Lebanese to 35. Israel also demolished 14 homes in the village, saying they were being used by Hizbollah to make roadside bombs.
Lebanon has protested to the United Nations and the United States over Israel's expansion of its self-declared security zone, set up in 1985.
The Lebanese Prime Minister, Salim al-Hoss, said: "Israel's assertions that it wishes to withdraw from Lebanon sound absurd as it annexes yet another village."
Israel says people from Arnoun can continue to cross in and out of the security zone by using a checkpoint at Kafr Tibneet.
Dore Gold, Israel's ambassador to the UN in New York, said Arnoun has "long been part of the security zone which Israel has been compelled to maintain in response to the continued terrorist attacks emanating from Lebanon".
There have been few rocket attacks and no ground assaults on Israel by Hizbollah since the agreement that ended the Israeli bombardment of southern Lebanon, known as "Grapes of Wrath", in 1996.
Earlier this week three Israeli officers from an elite paratroop unit were killed and five wounded when they were ambushed by Hizbollah.
Most Israeli casualties are inflicted by roadside bombs remotely controlled by command wire.Reuse content