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By Matt Spetalnick and Warren Strobel

WASHINGTON, March 1 (Reuters) – As Russia deepened its

military intervention in Ukraine’s Crimea region on Saturday,

ignoring Barack Obama’s stern warning, the U.S. president faced

a critical test of whether Washington has the leverage or the

will to get Moscow to back down.

Obama, who has avoided entanglement in global crises where

possible and focused on domestic affairs, now finds himself in

the midst of the most dangerous East-West standoff since the end

of the Cold War.

U.S. officials have said for months they did not want

Ukraine’s political crisis to turn into a Washington-Moscow tug

of war. But on Saturday, a week after Ukraine’s Russian-backed

president was ousted in a tide of popular anger, Obama’s foreign

policy aides rushed to craft a response to Russian President

Vladimir Putin’s blunt moves.

Putin’s parliament gave him the authority to invade Ukraine,

which he regards as part of Russia’s sphere of influence and

where his troops have apparently already seized the Crimea

peninsula.

In what appeared to be a tough 90-minute phone call with

Putin on Saturday, Obama condemned Russia’s military

intervention in Ukraine and warned that it could face further

political and economic isolation, the White House said. Obama

told the Russian leader that Washington was suspending

participation in meetings to prepare for this summer’s G-8

meetings in Sochi, Russia.

But Putin had brushed aside Obama’s threat on Friday that

“there will be costs” for any use of force in Ukraine. The

Russian leader, whom Obama once hoped to make a partner, now

seems a determined adversary.

He appears to be calculating that Obama’s willingness to go

to the mat over Ukraine, a country few Americans know much

about, does not match Russia’s readiness to assert itself over a

former Soviet republic with which it has close historic ties and

economic interests.

Crimea, part of Russia until 1954, is Ukraine’s only region

with a majority ethnic Russian population, and Russia has a

military presence already with the headquarters of its Black Sea

Fleet.

“Even though the president doesn’t want to view this as a

Cold War scenario, Vladimir Putin does,” U.S. Senator John

McCain, an Arizona Republican and a frequent critic of Obama’s

foreign policy, told Reuters. “The fact that the United States

has appeared weak in the world has encouraged him.”

The Obama administration appears to have few other ready

options to push back.

Current and former U.S. officials insist that Washington and

its European allies, while they have ruled out the use of

military force, can still exert pressure on Moscow by

demonstrating that it has a lot to lose if it continues on its

current course. That could the include the boost to its image

from hosting February’s Winter Olympic Games.

“Putin spent allegedly $50 billion to show off the ‘New

Russia’ at the Sochi Olympics,” said Michael McFaul, who left

his post as U.S. ambassador to Moscow earlier this week. “He has

to understand that all he has hoped for will be swept away if

indeed there’s a genuine military conflict.”

CRISIS MANAGEMENT

The escalating crisis also raises questions about whether

the White House was quick enough to recognize the seriousness of

the Ukraine issue and to give it adequate attention.

U.S. officials and other sources said that the State

Department, particularly the hard-charging assistant secretary

of state for Europe, Victoria Nuland, had for months been

raising alarms about Russia’s more aggressive posture toward

former Soviet states, and Ukraine in particular.

Washington’s engagement accelerated after a November 2013

European summit at which Ukraine – along with Armenia – declined

under heavy Russian pressure to sign association agreements with

the European Union.

“That’s when you saw the Americans stepping up,” said Damon

Wilson, executive vice president of the Washington-based

Atlantic Council, and a former adviser on Europe to President

George W. Bush.

Nuland, he said, “created U.S. policy really out of very

little at the time.”

McFaul said the Ukraine crisis was “on our radar at the

highest levels” from the outset last fall and he personally

acted as a bridge between the White House and State Department.

“It’s important to understand the limitation of what we can

and can’t do, but to say we weren’t paying attention is

incorrect,” the former ambassador, a longtime Obama confidant,

told Reuters by telephone late on Friday.

Wilson praised Obama’s sharper warnings to Russia on

Friday. Now, he said, the United States will have to decide how

deeply broader ties with Russia – already strained by

differences over the Syrian civil war – have been harmed. “At

what point does this disagreement become so significant that it

bleeds over into other issues?”

SEVERE CRISIS, FEW OPTIONS

James Collins, U.S. ambassador to Moscow from 1997-2001,

said that compared with the last major crisis with Russia, its

2008 war with Georgia, “this could be even more severe in terms

of poisoning Russia’s relations with the Europeans and the

United States.”

Obama, who decided to step in front of the cameras at the

White House on Friday after signs of heightened Russian military

activity in Crimea, was vague in his threat of the consequences.

A senior administration official said options being

considered included skipping the Sochi G8 summit in June and

rejecting Russian overtures for deeper trade and commercial

ties. In a statement on Saturday after Obama’s phone call with

Putin, the White House warned that Russia risked “greater

political and economic isolation.”

While it is too early to contemplate economic sanctions,

“there will be a time and a place for punitive action against

Russia if it in fact follows through on what appears to be

happening on the ground in Crimea,” McFaul said.

For the moment, Washington is still talking to Moscow at

high levels. In addition to the Obama-Putin call, U.S. Defense

Secretary Chuck Hagel spoke on Saturday with his Russian

counterpart, the Pentagon said, adding Hagel told Sergei Shoigu

that Moscow’s military intervention risked an escalation that

would threaten European and international security.

Asked whether some U.S. military units had been on alert

over turmoil in Crimea, a U.S. official said there was no change

in the U.S. military’s stance and the U.S. focus was on

diplomatic options.

Obama’s national security team met to discuss policy options

on Saturday, a senior Obama administration official said.

AID TO UKRAINE

Along with troops, Putin has made clear he is prepared to

pour money into Ukraine to pull it closer to Russia’s orbit.

The European Union, United States and International Monetary

Fund are all considering monetary support to Ukraine’s new

government, with promises of much larger IMF help if Ukraine

implements economic reforms after its elections in May.

There is concern in Washington whether funds will be

delivered fast enough to prop up Ukraine’s troubled economy.

Pressure is building on Capitol Hill to accelerate U.S. aid.

Obama also finds himself without a U.S. ambassador in Moscow

at a critical juncture, although the Obama administration

appears to be moving to rectify that.

Though McFaul’s departure had been scheduled for months,

Obama’s national security adviser, Susan Rice, and the State

Department only recently agreed on a candidate to succeed him,

officials said, a sign that an announcement could come soon.

Speculation in Washington is that those under consideration

include three former U.S. ambassadors to Ukraine, John Tefft,

Steven Pifer and Carlos Pascual.

(Additional reporting by Phil Stewart, Steve Holland and Arshad

Mohammed; Editing by Frances Kerry)