* Only occasional shelling after truce takes effect
* Putin and Poroshenko back truce, Obama wary
* EU considers new sanctions on Russia (Adds Obama, quotes, reports of shelling)
By Andrei Makhovsky
MINSK, Sept 5 Ukraine and pro-Russian rebels agreed a ceasefire on Friday, the first step towards ending fighting in eastern Ukraine that has caused the worst standoff between Moscow and the West since the Cold War ended.
The guns mostly fell silent when the truce began at six p.m. (1500 GMT) but occasional explosions and shelling could still be heard near the rebel stronghold of Donetsk later in the evening and many war-weary Ukrainians doubt it will hold.
The ceasefire was agreed in the Belarussian capital Minsk along with a deal allowing for prisoner exchanges, deliveries of humanitarian aid and the withdrawal of heavy weapons after five months of conflict that has killed more than 2,600 people.
"Human life is the highest value. We must do everything possible and impossible to end the bloodshed and put an end to people's suffering," Ukrainian President Petro Poroshenko said in a statement announcing the truce, agreed in Minsk with representatives of Russia and the OSCE security watchdog.
The Kremlin welcomed the agreement, based largely on proposals made by President Vladimir Putin and leaving the pro-Russian separatists in control of vast swaths of territory.
Putin's press secretary, Dmitry Peskov, urged the sides to build on the deal and seek a permanent political settlement, although many problems remain and an earlier ceasefire, in June, lasted only 10 days.
OBAMA HOPEFUL BUT SCEPTICAL
Attending a NATO summit in Wales, Poroshenko told reporters Ukraine was ready to grant a significant decentralisation of power and economic freedom to the regions as well as the right to use the language of their choice, and an amnesty.
But a senior rebel leader said the separatists still wanted a formal split for their mainly Russian-speaking regions.
"The ceasefire does not mean the end of (our) policy to split (from Ukraine)," Igor Plotnitsky, a leader of the Luhansk region, told reporters.
The ceasefire allowed people to emerge from cellars where they have been taking shelter.
"We went out for a walk after three days of hiding and this is a huge relief, but I am not optimistic. We've seen so many broken ceasefires," said Lesya, a 30-year-old resident of the port of Mariupol, out walking with her baby boy.
Hopes the ceasefire will hold are also clouded by Western suspicions that Putin unveiled his seven-point peace plan this week merely to dupe NATO's leaders and avert new sanctions being considered by the European Union over the crisis.
At the NATO summit, U.S. President Barack Obama, who accuses Russia of arming the rebels and sending in troops to back them, urged his European allies to agree on sanctions which could be suspended if the peace plan held.
Another option for the EU is to agree the sanctions but not implement them immediately to see whether the ceasefire holds.
"With respect to the ceasefire agreement, obviously we are hopeful but based on past experience also sceptical that in fact the separatists will follow through and the Russians will stop violating Ukraine's sovereignty and territorial integrity. So it has to be tested," Obama told a news conference.
NATO also sent a firm message to Russia by approving plans to boost its defences in eastern Europe, a move intended to reassure allies nervous about Russia's intervention in Ukraine that the U.S.-led alliance will shield them from any attack.
PUTIN, POROSHENKO BACK PEACE MOVES
Fighting began in east Ukraine in mid-April, after Russia annexed Crimea following the removal of a Ukrainian president sympathetic to Moscow and Kiev shifted policy towards the EU.
By pushing for a ceasefire this week, Poroshenko changed his position after the tide turned in the conflict and Ukrainian troops were beaten back by a resurgent rebel force which the West says has received military support from Russia.
Moscow denies arming the rebels or sending in Russian troops, but Poroshenko appears worried he cannot now defeat the rebels and needs time to tackle a growing economic crisis and prepare for a parliamentary election. It is a risky move.
"If he goes for a peace plan, then all these dead and wounded and exiled and all the homes burned and jobs lost and money lost, it was all for nothing," said a Ukrainian soldier, who gave his name only as Mykola.
Putin for the first time this week put his name to a concrete peace plan, proposing seven steps which would leave rebels in control of territory that is home to about one tenth of Ukraine's population and an even larger share of its industry. It would also require Ukraine to remain unaligned.
Although the Kremlin leader may not have secured all his goals, he had reason to secure a settlement because of the growing impact of sanctions on Russia's stuttering economy.
Public support for Putin is high because of the seizure of Crimea, a Russian territory until Soviet leader Nikita Khrushchev gave it to Ukraine 70 years ago, but this could change if the conflict drags on and many Russians are killed.
Putin's key goals appear now to be to ensure Ukraine, a country of more than 40 million where Moscow has long had major influence, does not join NATO and that the eastern regions of Ukraine win much more autonomy.
Although Poroshenko still calls for Crimea to be part of Ukraine, there is little chance of Russia giving it up. Moscow can also hope to maintain influence in eastern Ukraine if a peace deal seals the rebels' territorial gains, creating a "frozen conflict" that ensures Ukraine is hard to govern.
Indicating his readiness for a deal, Putin said last week Poroshenko was a man he could "do business with", a suggestion he has decided that having Poroshenko in power is preferable to others in Kiev whom Moscow describe as the "party of war".
The ceasefire is expected to be monitored by observers from the Organization for Security and Cooperation in Europe.
U.N. Secretary-General Ban Ki-moon welcomed the ceasefire but said "credible and comprehensive monitoring and verification are essential elements for successful implementation." (Additional reporting by Gareth Jones and Pavel Polityuk in Kiev, Aleksandar Vasovic in Mariupol, Elizabeth Piper, Alexei Anishchuk, Lidia Kelly, Jazson Bush and Alissa de Carbonnel in Moscow, Guy Faulconbridge and Paul Taylor in Wales and Gabriela Baczynska in Donetsk; writing by Timothy Heritage; editing by Giles Elgood)