KIEV - Ukraine's embattled leaders vowed Wednesday they would not bow to "blackmail" by pro-Russian rebels waging an insurgency in the east as Kiev launched round-table talks under a Western-backed push to prevent the country falling apart.
The so-called national unity discussions -- which crucially do not involve the insurgents -- were held barely 10 days before Ukraine holds a presidential election on May 25 that the West is scrambling to keep alive.
European leaders have been working to bring Kiev and pro-Moscow separatists together under a roadmap sponsored by pan-European security body the OSCE.
But Russia bluntly warned that the former Soviet republic was already on the brink of civil war and accused Western mercenaries of operating in Ukraine.
Ukraine's interim President Oleksandr Turchynov said at the round-table talks that Kiev was ready to negotiate with pro-Russians but that the rebels must first lay down their arms.
"We will not yield to blackmail," he said. "We are ready to listen to the people of the east but they must not shoot, loot or occupy government buildings."
The east of Ukraine remains on edge, with deadly violence erupting often as government troops battle against the separatists who have seized over a dozen towns and cities since early April.
Dozens have been killed in fighting in the east and in an inferno in the southern port city of Odessa, with the Ukrainian army losing seven soldiers in a rebel ambush on Tuesday.
'A real war'
And the crisis showed no signs of easing despite the flurry of diplomatic efforts following hotly disputed weekend independence referendums in the eastern industrial regions of Donetsk and Lugansk that raised fears of partition.
"When Ukrainians kill Ukrainians I believe this is as close to a civil war as you can get," Russian Foreign Minister Sergei Lavrov said in an interview with Bloomberg television.
"In east and south of Ukraine there is a war, a real war," he said.
Lavrov also said he had "strong suspicions" that Western mercenaries were operating in Ukraine, and played down the threat of further US and EU sanctions.
But he said Moscow had no intention of sending in troops to eastern Ukraine as it did while annexing Crimea in March, a move that exacerbated the worst crisis between Moscow and the West since the Cold War.
European leaders had called for Wednesday's talks to be representative, with OSCE-appointed mediator Wolfgang Ischinger saying they should contribute to an "electoral process that is inclusive, honest and transparent".
The roadmap drawn up by Organisation for Security and Cooperation in Europe calls for "restraint from violence, disarmament, national dialogue, and elections".
EU leaders had ramped up the pressure on Russia with new sanctions Monday, and warned of further "far-reaching" punitive measures if the election fails.
But while voicing support for the plan, Russia has accused Ukraine's authorities of refusing real dialogue with the separatists.
It says Kiev must halt its so-called "reprisal raids" if rebels are to comply with the peace initiative, and insists on negotiations over regional rights before the presidential vote.
Russia has however rolled back its vehement opposition to the election, called by Kiev's new leaders after the ouster of pro-Kremlin president Viktor Yanukovych in February, the climax of months of sometimes deadly pro-EU protests.
'Lesser of two evils'
The speaker of the lower house State Duma, Sergei Naryshkin, described the vote as "the lesser of two evils".
Fears for Ukraine's very future have been heightened following the independence votes in the eastern industrial regions, home to seven million of the country's 46 million people.
The referendums were rejected as illegal and a farce by Kiev and the West, fearful that President Vladimir Putin would move quickly to annex the territories as he did with Crimea in March.
Turchynov charged Wednesday that the loss of the strategic Black Sea peninsula had cost Ukraine's struggling economy $100 billion.
The Russian "aggression has not stopped" and has spread to the east, he said. "The situation is explosive in the Donetsk and Lugansk regions."
Putin said last week that Russia had withdrawn its estimated 40,000 troops from the border, but the West says it has seen no sign of a major pullback.
But pro-Russian lawmaker Olexander Efremov said at Wednesday's talks that "tens of thousands" of local residents support the armed rebellion.
And as the discussions wrapped up late Wednesday, there were calls for the next round to be held in Donetsk.
Ukraine also faced a stark warning from the European Bank for Reconstruction and Development -- which was founded to help ex-Soviet bloc countries make the transition to free-market economies -- about the wider fallout from the crisis.
In a bleak report, the EBRD warned that Ukraine risked plunging deeper into recession with the economy forecast to shrink seven percent this year while Russian growth would be flat.
The economic woes are adding to European concerns about the vital supply of Russian gas, much of which flows through Ukraine.
Russia has threatened to cut gas supplies from June 3 if Ukraine does not pay a $1.66 billion bill.
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