* Army pullout must be first move in ceasefire
* Annan says "deadline is now"
* Artillery, mortars hit Homs; 37 die in clashes
* Hezbollah says world won't try to topple Assad
By Erika Solomon and Douglas Hamilton
BEIRUT, March 30 Syrian artillery hit parts of Homs city and at least 37 people were killed in clashes around Syria on Friday, opposition activists said, as peace envoy Kofi Annan told President Bashar al-Assad his forces must be first to cease fire and withdraw.
"The deadline is now," Annan's spokesman Ahmad Fawzi said in Geneva. "We expect him to implement this plan immediately."
An army pullback to bases would permit a safe return to mass, peaceful protest, said anti-government activists. But there was no sign of any risk-free demonstrations on Friday.
Heavy clashes raged in several provinces, including the northeastern Deir al-Zor province. Seven civilians died in fighting there, which also killed two rebels and three soldiers, the Syrian Observatory for Human Rights reported.
In the capital Damascus, Friday protests drew gunfire in several neighbourhoods. Two died in the crossfire between rebels and state forces, the British-based Observatory said.
"Clashes erupted between armed defector groups and the regime forces in the Jobar neighbourhood of Damascus after security forces tried to break up a protest," it said.
In Homs, Syria's third city, residents said shells and mortar rounds exploded as troops raided anti-Assad areas, killing 10 civilians. Farther north, in the business hub of Aleppo, an explosion badly wounded six soldiers and five civilians, activists said.
Assad vowed that he would spare no effort to implement Annan's peace proposals, but warned they would not work unless there is an end to foreign funding and arming of rebel groups.
The United Nations says Assad's forces have killed at least 9,000 people in the year-long uprising. The government says around 3,000 soldiers and police have been killed.
INTERVENTION "CLOSED SUBJECT"
The leader of Lebanon's powerful Shi'ite group Hezbollah, one of Assad's main allies, said the world would no longer demand the president's ouster and that rebels were incapable of toppling him by force.
"The armed opposition is incapable of toppling the regime," Sayyed Hassan Nasrallah said. "Some people talked about the political option...but with conditions that equaled the fall of the regime, for example for President Assad to step down. I think the international and regional political climate today has passed this phase."
Nasrallah pointed to Annan's initiative as proof that world powers would not try to help the opposition topple Assad.
Removing any ambiguity about the ceasefire terms of the peace plan, Annan's spokesman said it was up to the Syrian military to move first and show good faith by withdrawing tanks, big guns and troops from cities.
The Annan plan "specifically asks the government to withdraw its troops, to cease using heavy weapons in populated centres", Fawzi said. "The very clear implication here is that the government must stop first and then discuss a cessation of hostilities with the other side and with the mediator."
The plan requires the lightly-armed rebels to stop shooting. But the Free Syrian Army (FSA) has not said whether it accepts Annan's proposals and political opposition groups have not explicitly endorsed his call for a dialogue with Assad.
Annan is acting on behalf of the United Nations and Arab League. Diplomats say he may ask for a U.N. monitoring mission to oversee implementation of the peace plan.
"Let's not get ahead of ourselves. First we want to see that the bloodbath ends," said an activist calling himself Abu Mohammed.
If the U.N. plan is adopted and peace monitors are deployed, the opposition could protest peacefully and openly as Egyptians did during their revolt against Hosni Mubarak, he said.
"But it's not going to happen."
CLINTON IN TALKS
U.S. Secretary of State Hillary Clinton met Saudi Arabia's King Abdullah in Riyadh on Friday to discuss the conflict ahead of a "Friends of Syria" conference with opposition leaders and Arab and Western foreign ministers at the weekend in Istanbul.
Saudi Arabia, with Qatar, has led Arab efforts to press Assad to end his crackdown on the uprising and step aside.
"The policy options are very limited. The United States is in no position to assist in arming the rebels or to provide any kind of military support for them. So my guess is there will be efforts from the Saudis to coordinate proposals and at least buy time for the rebels," said former U.S. envoy Robert Jordan.
Syrian dissidents said a military withdrawal - if it happens - would let them return to peaceful mass demonstrations.
"There is nothing happening that can lift people's spirits, but we've reached a stage of no going back, so it doesn't really matter," said anti-Assad activist Waleed Fares.
"The real question is if Assad will actually implement Annan's initiative ... That wouldn't even satisfy the minimum of our demands except that he would have to allow us to protest peacefully without shooting us and shelling our homes."
Assad's strongest regional ally, Iran, said 12 Iranian citizens abducted "by Syrian opposition forces" had been released, including five engineers working for Syria's power plant in Homs who were kidnapped in late December.
Iran is helping Syria beat Western sanctions by providing a tanker to ship Syrian oil to China, netting a potential $80 million. Along with Syria's big-power ally Russia, China has shielded Assad, vetoing two Western-backed resolutions at the United Nations over the bloodshed.
China is not bound by Western sanctions against Syria.