* German Chancellor, in Ukraine capital, says peace is
* Merkel proposes observer mission to control frontier
* NATO alleges Russia sending troops into Ukraine, Moscow
* Russian truck convoy heads out of Ukraine
* In rebel-held city of Donetsk, shelling destroys homes
(Updates throughout with Merkel comments)
By Natalia Zinets and Richard Balmforth
KIEV, Aug 23 - German Chancellor Angela Merkel
said on Saturday the standoff over Ukraine could be solved but
only if control was tightened over the Ukraine-Russia border
across which, the West alleges, Russia has been funnelling arms
to help a separatist rebellion.
Merkel was visiting Kiev as a prelude to a meeting next week
between the Russian and Ukrainian leaders that diplomats say is
the best chance in months of a peace deal in eastern Ukraine,
where government forces are fighting pro-Moscow rebels.
But she arrived as tensions flared up again. NATO has
alleged Russia's military is active inside Ukraine helping the
rebels, and Moscow angered Kiev and its Western allies by
sending an aid convoy into Ukraine against Kiev's wishes.
"There must be two sides to be successful. You cannot
achieve peace on your own. I hope the talks with Russia will
lead to success," said Merkel, looking ahead to a meeting on
Tuesday involving Russian President Vladimir Putin and his
Ukrainian counterpart Petro Poroshenko.
"The plans are on the table...now actions must follow," the
German leader told a news conference after talks with Poroshenko
in the Ukrainian capital.
She said a ceasefire was needed, but the main obstacle was
the lack of controls along the nearly 2,000 km (1,300 mile)
border. She proposed an agreement between Kiev and Moscow on
monitoring of the frontier by the Organisation for Security and
Cooperation in Europe.
Poroshenko suggested he saw scope for accord.
"The Ukrainian side and our European partners will do
everything possible to bring about peace - but not at the price
of sovereignty, territorial integrity and the independence of
Ukraine," he said.
Hours before her plane landed in Kiev, there was heavy
artillery bombardment in Donetsk, the main separatist stronghold
on the east of Ukraine, near the border with Russia. Reuters
reporters saw apartments destroyed and puddles of blood, where,
according to residents, two civilians were killed.
The unusually intense shelling may be part of a drive by
government forces to achieve a breakthrough against the rebels
in time for Ukrainian Independence Day, which falls on Sunday.
Diplomats say Merkel has two aims for the visit: primarily
to show support for Kiev in its stand-off with Russia, but also
to urge Poroshenko to be open to peace proposals when he meets
Putin next week.
The conflict in Ukraine has dragged Russian-Western
relations to their lowest ebb since the Cold War and sparked a
round of trade sanctions that are hurting already-fragile
economies in European and Russia.
A convoy of about 220 white-painted trucks rolled into
Ukraine on Friday through a border crossing controlled by the
rebels after days waiting for clearance.
Moscow said the trucks moved in without Kiev's consent
because civilians in areas under siege from Ukrainian government
troops were in urgent need of food, water and other supplies.
Kiev called the convoy a direct invasion, a stance echoed by
NATO, the United States, and European leaders.
A Reuters journalist at the Donetsk-Izvaryne border
crossing, where the convoy rolled into Ukraine on Friday, said
trucks on Saturday had started pouring back onto the Russian
side of the border.
The foreign ministry in Moscow said the convoy had now left
Ukraine, though a Ukrainian military spokesman disputed this,
saying only 184 of the 220 vehicles had re-entered Russia.
In Brussels, NATO said it had reports of Russian troops
engaging Kiev's forces inside Ukraine - fuelling Western
allegations that the Kremlin is behind the conflict in an effort
undermine the Western-leaning leadership in Kiev.
"Russian artillery support - both cross border and from
within Ukraine - is being employed against the Ukrainian armed
forces," said NATO spokeswoman Oana Lungescu.
A Ukrainian military spokesman in Kiev, Andriy Lysenko, said
Ukrainian government forces were now coming under cross-border
fire from Russia, using Grad and Uragan missiles, over a 400 kms
(250 mile) length of the border.
The Russian foreign ministry, in a statement, called those
allegations "groundless." Russia accuses Kiev, with the backing
of the West, of waging a war against innocent civilians in
eastern Ukraine, a mainly Russian-speaking region.
The crisis over Ukraine started when mass protests in Kiev
ousted a president who was close to Moscow, and installed
leaders viewed with suspicion by the Kremlin.
Soon after that, Russia annexed the Ukrainian region of
Crimea, and a separatist rebellion broke out in eastern Ukraine.
In the past weeks, the momentum has shifted towards Ukraine's
forces, who have been pushing back the rebels.
The separatists are now encircled in their two strongholds,
Luhansk and Donetsk.
Reuters reporters in Donetsk said that most of the shelling
was taking place in the outskirts, but explosions were also
audible in the centre of the city.
In Donetsk's Leninsky district, a man who gave his name as
Grigory, said he was in the toilet on Saturday morning when he
heard the whistling sound of incoming artillery. "Then it hit. I
came out and half the building was gone."
The roof of the building had collapsed into a heap of
debris. Grigory said his 27-year-old daughter was taken to
hospital with injuries to her head. He picked up a picture of a
baby from the rubble. "This is my grandson," he said.
In another residential area, about 5 km north of the city
centre, a shop and several houses had been hit. Residents said
two men, civilians, were killed.
Praskoviya Grigoreva, 84, pointed to two puddles of blood on
the pavement near a bus stop that was destroyed in the same
attack. "He's dead. Death took him on this spot," she said.
(Additional reporting by Maria Tsvetkova and Tom Grove in
Donetsk, Ukraine, Madeline Chambers in Berlin, Adrian Croft in
Brussels, Dmitry Madorsky at Donetsk border cross, Russia, and
Vladimir Soldatkin in Moscow; Writing by Christian Lowe; Editing
by Ralph Boulton)