WRAPUP 3-Syrian VP says neither side can win war
* Syrian VP most prominent figure to say Assad cannot win
* French foreign minister says end is near for Assad
* Rebels announce offensive in Hama province
* Intra-Palestinian fighting in Damascus
BEIRUT, Dec 17 (Reuters) - Syrian Vice President Farouq al-Sharaa said that neither the forces of President Bashar al-Assad nor rebels seeking to overthrow him can win the war which is now being fought on the outskirts of Assad's powerbase in Damascus.
Sharaa, a Sunni Muslim in a power structure dominated by Assad's Alawite minority, has rarely been seen since the Syrian revolt erupted in March 2011 and is not part of the president's inner circle directing the fight against Sunni rebels.
But he is the most prominent figure to say in public that Assad will not win. He was speaking to Lebanon's al-Akhbar paper in an interview from Damascus, which is now hemmed in by rebel fighters to the south.
Assad's forces have used jets and artillery to try to dislodge the fighters from around Damascus but the violence has crept into the heart of the capital and activists said rebels overran three army stations in a new offensive in the central province of Hama on Monday.
Sharaa said the situation in Syria, where more than 40,000 people have been killed, was deteriorating and a "historic settlement" was needed to end the conflict, involving regional powers and the U.N. Security Council and the formation of a national unity government "with broad powers".
"With every passing day the political and military solutions are becoming more distant. We should be in a position defending the existence of Syria. We are not in a battle for an individual or a regime," Sharaa was quoted as saying.
"The opposition cannot decisively settle the battle and what the security forces and army units are doing will not achieve a decisive settlement," he told the paper, adding that the insurgents fighting to topple Syria's leadership could plunge it into "anarchy and an unending spiral of violence".
Sources close to the Syrian government say Sharaa had pushed for dialogue with the opposition and objected to the military response to an uprising that began peacefully.
In Damascus, clashes raged between Palestinian factions loyal to and opposed to Assad in the Yarmouk district a day after Syrian fighter jets bombed a mosque there, killing at least 25 people.
Activists said troops and tanks were gathered outside the camp on Monday and hundreds of Palestinians refugees living in Syria flooded into Lebanon.
Syria hosts half a million Palestinian refugees, most living in Yarmouk and descendants of those admitted after the creation of Israel in 1948, and has always cast itself as a champion of the Palestinian struggle, sponsoring several guerrilla factions.
Both Assad's government and the mainly Sunni Muslim Syrian rebels have enlisted and armed divided Palestinian factions as the uprising has developed into a civil war.
In a veiled criticism of the crackdown, Sharaa said there was a difference between the state's duty to provide security to its citizens, and "pursuing a security solution to the crisis".
He said even Assad could not be certain where events in Syria were leading, but that anyone who met him would hear that "this is a long struggle...and he does not hide his desire to settle matters militarily to reach a final solution."
"We realise today that change is inevitable," Sharaa said, but "none of the peaceful or armed opposition groups with their known foreign links can call themselves the sole legitimate representative of the Syrian people".
"Likewise the current leadership...cannot achieve change alone after two years of crisis without new partners who contribute to preserving (Syria's) national fabric, territorial unity and regional sovereignty".
Rebels have now brought the war to the capital, without yet delivering a fatal blow to the government. But nor has Assad found the military muscle to oust his opponents from the city.
In Hama province, rebels and the army clashed in a new campaign launched on Sunday by rebels to block off the country's north, activists said.
The Syrian Observatory for Human Rights, an opposition-linked violence monitor, said fighting raged through the provincial towns of Karnaz, Kafar Weeta, Halfayeh and Mahardeh.
"There is not fighting in these areas often," said Rami Abdelrahman, head of the Observatory, adding that rebels units from Idlib joined the offensive and three army stations had been destroyed.
He said there were no clashes reported in Hama city, which lies on the main north-south highway connecting the capital with Aleppo, Syria's second city.
Qassem Saadeddine, a member of the newly established rebel military command, told Reuters on Sunday fighters had been ordered to surround and attack army positions across the province. He said forces loyal to Assad had been given 48 hours to surrender or be killed.
"When we liberate the countryside of Hama province ... then we will have the area between Aleppo and Hama liberated and open for us," he said.
In 1982 Hafez al-Assad, father of the current ruler, crushed an uprising in Hama city, killing up to 30,000 civilians.
Qatiba al-Naasan, a rebel from Hama, said the offensive would bring retaliatory air strikes from the government but that the situation is "already getting miserable".
"For sure there will be slaughter - if the army wants to shell us many people will die. There are many populated areas and many refugees have fled here."
"(But) we felt it was always inevitable Hama would be shelled and we at least want to be fighting to liberate it," he said from Hama through Skype.
He said rebels would attack areas of strategic significance but not maintain a presence in other areas to allow civilians a safe place to flee.