The west believes a rebel advance since last week is the result of an assault by heavily armed Russian troops sent across the border, and has been scrambling to find a response to the biggest confrontation with Moscow since the Berlin Wall fell.
Western states have backed Kiev with words and economic sanctions on Moscow, but have also made clear that they will not fight to protect Ukraine, where pro-Russian rebels rose up in two provinces after Moscow annexed the Crimea peninsula in March.
Ukraine President Petro Poroshenko was invited to meet US President Barack Obama, Germany's Angela Merkel, France's Francois Hollande and other Western leaders at a summit of Nato in Wales hosted by Britain's David Cameron.
"To the east, Russia has ripped up the rule book with its illegal, self-declared annexation of Crimea and its troops on Ukrainian soil threatening and undermining a sovereign nation state," Obama and Cameron wrote in a joint newspaper editorial.
Hollande brought the biggest surprise on the eve of the summit: postponing the delivery of a helicopter carrier warship to Russia, a measure he had long resisted. Moscow accused him of caving in to US political pressure.
"France's reputation as a reliable partner that carries out its contractual obligations has been thrown into the furnace of American political ambitions," Russian Foreign Ministry deputy spokeswoman Maria Zakharova wrote on Facebook.
Conflicting signals
The past few days have seen conflicting signals from Moscow. After a week of belligerent statements, President Vladimir Putin unveiled a peace proposal on Wednesday and discussed it with Poroshenko. The Ukrainian president, who has tried to keep diplomatic lines open with the Russian leader, at one point even suggested on his website on that a ceasefire was in the works.
But his prime minister, Arseny Yatseniuk, dismissed Putin's proposal, which would require Ukraine to pull its forces out of rebel held territory, as a "deception" and said Putin's real aim was to "destroy Ukraine and restore the Soviet Union."
Ukraine has previously refused to discuss any political deal with the rebels, calling them international terrorists and proxies of Moscow. But with the hope of swiftly wiping the rebels out having evaporated in the past week, Poroshenko may believe it is now time to accept a Kremlin-backed peace offer.
This week the pro-Russian rebels, who previously insisted on independence, said they would be content with some kind of special status formally in Ukraine. Putin's peace offer would effectively keep them in control of territory that accounts for a tenth of Ukraine's population and a much of its industry.
On the ground, there was no sign of any ceasefire. Government forces shelled the southern outskirts of the rebel bastion of Donetsk overnight. Rebels said they would not consider any truce unless government forces quit the two provinces they now refer to as "New Russia".
Bomb shelter
Houses in Donetsk's leafy Petrovka district were pockmarked with shrapnel. Residents had sought refuge in a bomb shelter.
"I don't think they can reach any agreements now. Each side comes up with conditions unacceptable for the other. And so we get shelled," said Lena, a resident who declined to give her surname.
"I don't think the Ukrainians can hold on to any peace agreement. They talked peace yesterday and they shell the Petrovka district of the city overnight. Civilians were killed again," said a rebel fighter with the nom de guerre "the Miner".
Government troops had been on the offensive since Poroshenko was elected in June, squeezing the rebels into two provincial capitals, Donetsk and Luhansk.
But last week saw the rebels turn the tide with a dramatic advance that scattered government troops on a new front along the coast of the Sea of Azov separating the rebellious provinces from Crimea, which Russia seized and annexed in March.
Government forces and local residents have been reinforcing the next big city in the path of the rebels, the port of Mariupol, where the government had driven out separatists in June with the help of patrols of local metalworkers.
Kiev and its Western allies say the rebel advance could not have taken place without an open military assault by armored columns of Russian forces. Moscow denies it has sent troops across the border despite what Western countries say is overwhelming evidence of their presence.
Nato leaders are expected to take new steps at their summit to defend alliance members near Ukraine, including setting up a rapid reaction force.
But the alliance has made clear it will not fight to defend non-member Ukraine itself. Instead, Western countries have relied mainly on economic measures to punish Moscow.
The European Union is considering new sanctions this week which could tighten financial restrictions on Russian companies. Russia has responded to sanctions by banning imports of most Western food.
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