* Fighting rages on outskirts of Damascus
* Assad calls for total victory effort
* Speech escalates rhetoric
* Erdogan says beware wrath of Turkey (Adds Russian comments, Geneva meeting)
By Oliver Holmes
BEIRUT, June 26 Syrian President Bashar al-Assad declared on Tuesday that his country was at war and ordered his new government to spare no effort to achieve victory, as the worst fighting of the 16-month conflict reached the outskirts of the capital.
Video published by activists recorded heavy gunfire and explosions in suburbs of Damascus. A trail of fresh blood on a sidewalk in the suburb of Qudsiya led into a building where one casualty was taken. A naked man writhed in pain, his body pierced by shrapnel.
Syria's state news agency SANA said "armed terrorist groups" had blocked the old road from Damascus to Beirut.
The declaration that Syria is at war marks a change of rhetoric from Assad, who had long dismissed the uprising against him as the work of scattered militants funded from abroad.
"We live in a real state of war from all angles," Assad told a cabinet he appointed on Tuesday in a speech broadcast on state television.
"When we are in a war, all policies and all sides and all sectors need to be directed at winning this war."
The rambling speech - Assad also commented on subjects as far afield as the benefits of renewable energy - left little room for compromise. He denounced the West, which "takes and never gives, and this has been proven at every stage".
The United Nations accuses Syrian forces of killing more than 10,000 people during the conflict, which began with a popular uprising and has built up into an armed insurgency against four decades of rule by Assad and his father.
The U.N. peacekeeping chief said it was too dangerous for a U.N. observer team, which suspended operations this month, to resume monitoring a ceasefire. The truce, part of a peace plan backed by international envoy Kofi Annan, has long since been abandoned in all but name.
The Syrian Observatory for Human Rights, a group which compiles reports from rebels, said 115 people were killed across Syria on Tuesday, making it one of the bloodiest days of the conflict. Its toll included 74 civilians it said had been killed, including 28 in Qudsiya.
It described heavy fighting near the headquarters of the Republican Guard in Qudsiya, and in other Damascus suburbs of al-Hama and Mashrou' Dumar, just 9 km from the capital.
SANA said dozens of rebels were killed or wounded and others arrested in fighting on the old Beirut road. Government forces seized rocket launchers, sniper rifles, machineguns and a huge amount of ammunition, it said.
Accounts from the rebels and the government cannot be verified because access for journalists is restricted.
Samir al-Shami, an activist in Damascus, said tanks and armoured vehicles were out on the streets of the suburbs.
Turkish Prime Minister Tayyip Erdogan said Syria must beware the wrath of Turkey after Syrian forces shot down a Turkish warplane on Friday at the Mediterranean coast. He ordered his armed forces to react to any threat from Syria near the border.
"Our rational response should not be perceived as weakness, our mild manners do not mean we are a tame lamb," he told a meeting of his parliamentary party. "Everybody should know that Turkey's wrath is just as strong and devastating as its friendship is valuable."
NATO member states, summoned by Turkey to an urgent meeting in Brussels, condemned Syria over the incident in which two airmen were killed. The Western alliance called the incident "unacceptable" but stopped short of threatening retaliation.
NATO's cautious wording demonstrated the fear of Western powers as well as Turkey that armed intervention in Syria could stir sectarian war across the region. So far there has been no sign of an appetite for intervention like that carried out last year by NATO against Libya's Muammar Gaddafi.
NO ACTION "AT THIS STAGE"
A Turkish official said Ankara's ambassador had not asked the NATO envoys for action "at this stage". Erdogan's speech was seen in Turkey as less belligerent than it might have been.
"Those who want war may be disappointed by the prime minister's speech," Turkish journalist Mehmet Ali Birand wrote. "But a big part of society breathed a sigh of relief."
Nevertheless, Turkish officials say they are ready for scenarios that include a possible need to protect civilians near the border. A Turkish official who asked not to be identified said: "For Turkey there are two bad scenarios: one, a mass influx of refugees and two, large-scale massacres in Syria."
"Ankara has not taken a decision for military intervention or a humanitarian corridor at the moment. But if these are needed, everybody would prefer that they will be done with international legitimacy. However, if things go really badly we have to be ready for any kind of eventuality," he added.
Erdogan said the armed forces' rules of engagement had been changed as a result of the attack, which Turkey says took place without warning in international air space.
"Every military element approaching Turkey from the Syrian border and representing a security risk and danger will be assessed as a military threat and will be treated as a military target," he said.
Russia, which has acted as Assad's main defender in the U.N. Security Council, called for restraint and said shooting down the aircraft should not be "viewed as a provocation or a premeditated action."
Syrian and Turkish accounts of the incident differ. Syria says it had no choice but to take out the plane as it entered Syrian air space flying low and at high speed. It found out it was Turkish only after the engagement. Turkey insists its aircraft entered Syrian air space only briefly by mistake.
Turkey is the base for the rebel Free Syrian Army (FSA) and shelters more than 30,000 refugees - a number Erdogan worries could rise sharply as fighting spreads. Rebel soldiers move regularly across the border and defectors muster inside Turkey.
Moscow has close relations with Damascus and has a naval base at Syria's port city of Tartus close to the spot where the jet was downed. Some defence experts said the Turkish plane could have been testing Russian-supplied Syrian air defences.
Moscow-based defence think-tank CAST said Russia was expected to deliver nearly half a billion dollars worth of air defence systems, repaired helicopters and fighter jets to Syria this year despite international pressure to halt the arms sales.
Russia said it was crucial Iran should also attend a meeting on Syria of the five permanent U.N. Security Council members and regional players organised by Annan in Geneva this weekend.
Western countries oppose Iran, Syria's closest regional ally, taking part in the meeting and some diplomats have said it was not entirely clear whether the meeting would take place. (Additional reporting by Jon Hemming, Jonathon Burch and Tulay Karadeniz in Ankara, Ayla Jean Yackley and Daren Butler in Istanbul, Mirna Sleiman in Beirut, Khaled Yacoub Oweis in Amman, Justyna Pawlak in Brussels, David Brunnstrom in Washington and Louis Charbonneau at the United Nations; Writing by Peter Graff and Ralph Boulton; Editing by Michael Roddy)