Georgia, rebels cease fire, call talks

By Margarita Antidze

MEGVREKISI, Georgia (Reuters) - Georgian forces and separatists in breakaway South Ossetia ceased fighting on Thursday and called talks after days of heavy clashes raised fears of new war in the volatile Caucasus.

In a dramatic address, Georgian President Mikheil Saakashvili offered the separatists an immediate ceasefire.

Moscow said the two sides had agreed to talk at the Russian peacekeeping base in the separatist capital Tskhinvali on Friday.

Georgia's breakaway regions of South Ossetia and Abkhazia enjoy the political and financial backing of Russia but ex-Soviet Georgia has allied itself with the West and is pushing for membership of NATO. It lies at the heart of a region emerging as is a vital energy transit route.

Interfax quoted Russian peacekeeping commander Marat Kulakhmetov as saying that shelling, blamed by both sides on each other, had ceased. Kulakhmetov said the separatists and Tbilisi reached a deal.

A senior Georgian official said there had been no formal agreement but that the fighting had stopped.

The United States said it had agreed with Russia to work together to stop the fighting.

"I offer you an immediate ceasefire and the immediate beginning of talks," Saakashvili said in a televised address.

He said he had issued an order not to retaliate.

"It was a painful decision, but we have suffered casualties and villagers' homes have been damaged," he said.

Russian mediator Yuri Popov said the two sides would hold Moscow-mediated talks on Friday in Tskhinvali.

Fifteen years after South Ossetia and the Black Sea region of Abkhazia first fought to break away from Georgian rule, soaring tensions had raised the specter of full-blown conflict.

Explosions and gunfire could be heard on Thursday from villages around Tskhinvali, 100 km (60 miles) north of the Georgian capital Tbilisi towards the mountainous Russian border.

"UNPRECEDENTED DRAMA"

Two Georgian peacekeepers were killed and four wounded. A Georgian armored personnel carrier (APC) was destroyed in fighting around the Georgian-held village of Avnevi.