By Andrei Makhovsky
MINSK (Reuters) - Ukraine and pro-Russian rebels reached a ceasefire agreement on Friday, the first step toward ending fighting in eastern Ukraine that has caused the worst standoff between Moscow and the West since the Cold War ended.
The ceasefire deal was struck in the Belarussian capital Minsk along with a deal allowing for prisoner exchanges, deliveries of humanitarian aid and the withdrawal of heavy weapons after five months of a conflict that has killed more than 2,600 people.
Despite some initial shelling in the rebel stronghold of Donetsk after the truce began at 6 p.m. (1100 ET), the ceasefire appeared to be holding. But many residents and combatants were skeptical that the ceasefire could last long or provide the basis for a durable peace settlement. The two sides remain far apart on the future of the region.
Despite the deal, European Union ambassadors agreed to stronger sanctions against Russia over its involvement in the war in Ukraine, with the measures set to be implemented on Monday, diplomats said in Brussels.
The diplomats said the EU sanctions - the latest economic measures aimed at Moscow over Ukraine - could be suspended if the truce holds and Russia withdraws its troops from Ukraine.
"Human life is the highest value. We must do everything possible and impossible to end the bloodshed and put an end to people's suffering," Ukrainian President Petro Poroshenko said in a statement announcing the truce, reached with representatives of Russia and the OSCE security watchdog.
The Kremlin welcomed the agreement, based largely on proposals made by President Vladimir Putin and leaving the pro-Russian separatists in control of vast swaths of territory.
Putin's press secretary, Dmitry Peskov, urged the sides to build on the deal and seek a permanent political settlement, although many problems remain and an earlier June ceasefire lasted only 10 days.
OBAMA WARY ABOUT CEASEFIRE
At a NATO summit in Wales, U.S. President Barack Obama, who accuses Russia of arming the rebels and sending in troops to back them, reacted with skepticism to the deal.
"With respect to the ceasefire agreement, obviously we are hopeful but based on past experience also skeptical that in fact the separatists will follow through and the Russians will stop violating Ukraine's sovereignty and territorial integrity. So it has to be tested," Obama told a news conference.
"We also sent a strong message to Russia that actions have consequences. Today the United States and Europe are finalizing measures to deepen and broaden our sanctions across Russia's financial, energy and defense sectors," Obama added.
The agreement among the European Union countries expanded the package of sanctions against Russia to measures related to access to capital markets, defense, dual-use goods and sensitive technology, an EU diplomat said. The EU also expanded the list of people under an asset freeze to include the new leadership in Ukraine's Donbass region, Crimea's government and Russian decision-makers and oligarchs.
Also attending the NATO summit, Poroshenko told reporters Ukraine was ready to grant a significant decentralization of power and economic freedom to the regions as well as the right to use the language of their choice and an amnesty.
A senior rebel leader said separatists still want a formal split for their mainly Russian-speaking regions. "The ceasefire does not mean the end of (our) policy to split (from Ukraine)," Igor Plotnitsky, a leader of the Luhansk region, told reporters.
NATO also sent a firm message to Russia by approving wide-ranging plans to boost its defenses in eastern Europe, aiming to reassure allies nervous about Russia's intervention in Ukraine that the U.S.-led alliance will shield them from any attack.
The plan includes creating a "spearhead" rapid reaction force and pre-positioning supplies and equipment in eastern European countries so they can be reinforced within days in a crisis.
Minutes after the ceasefire began, three blasts were heard north of Donetsk, followed by scattered mortar and artillery fire, but this later fell quiet. The ceasefire allowed people to emerge from cellars where they have been taking shelter.
"We went out for a walk after three days of hiding, and this is a huge relief," said Lesya, 30, carrying her newborn boy in Mariupol. "But I am not optimistic. We have already seen so many broken ceasefires."
Hopes the ceasefire will hold are also clouded by Western suspicions that Putin unveiled a seven-point peace plan this week merely to dupe NATO's leaders and avert new sanctions being considered by the European Union over the crisis.
Fighting began in east Ukraine in mid-April, after Russia annexed Crimea following the removal of a Ukrainian president sympathetic to Moscow and Kiev shifted policy toward the EU.
By pushing for a ceasefire this week, Poroshenko changed his position after the tide turned in the conflict and Ukrainian troops were beaten back by a resurgent rebel force which the West says has received military support from Russia.
'ALL FOR NOTHING'
Moscow denies arming the rebels or sending in Russian troops, but Poroshenko appears worried he cannot now defeat the rebels and needs time to tackle a growing economic crisis and prepare for a parliamentary election. It is a risky move.
"If he goes for a peace plan, then all these dead and wounded and exiled and all the homes burned and jobs lost and money lost, it was all for nothing," said a Ukrainian soldier, who gave his name only as Mykola.
Putin for the first time this week put his name to a concrete peace plan, proposing seven steps which would leave rebels in control of territory that is home to about one-tenth of Ukraine's population and an even larger share of its industry. It would also require Ukraine to remain unaligned.
Although the Kremlin leader may not have secured all his goals, he had reason to secure a settlement because of the growing impact of sanctions on Russia's stuttering economy.
Public support for Putin is high because of the seizure of Crimea, a Russian territory until Soviet leader Nikita Khrushchev gave it to Ukraine 70 years ago. But this could change if the conflict drags on and many Russians are killed.
Putin's key goals appear now to be to ensure that Ukraine, a country of more than 40 million where Moscow has long had major influence, does not join NATO and that the eastern regions of Ukraine win much more autonomy.
Although Poroshenko still calls for Crimea to be part of Ukraine, there is little chance of Russia giving it up. Moscow can also hope to maintain influence in eastern Ukraine if a peace deal seals the rebels' territorial gains, creating a "frozen conflict" that ensures Ukraine is hard to govern.
U.N. Secretary-General Ban Ki-moon welcomed the ceasefire but said "credible and comprehensive monitoring and verification are essential elements for successful implementation."
(Additional reporting by Gareth Jones and Pavel Polityuk in Kiev, Aleksandar Vasovic in Mariupol, Elizabeth Piper, Alexei Anishchuk, Lidia Kelly, Jazson Bush and Alissa de Carbonnel in Moscow, Steve Holland, Phil Stewart, Adrian Croft, Michael Holden, Guy Faulconbridge and Paul Taylor in Wales, Aleksandar Vasovic and Gabriela Baczynska in Donetsk, Jan Strupczewski in Brussels; Writing by Will Dunham and Timothy Heritage; Editing by Giles Elgood and Jonathan Oatis)