REPORT: Separatist leader in Ukraine city says Kiev "spy"...

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The main separatist leader in the eastern Ukrainian city of Slaviansk said on Friday that a military "spy" for the Kiev government was in a group of international military observers who have been held by the rebels.

"It was reported to me that among them (the detained group) was an employee of the Kiev secret military staff," said Vyacheslav Ponomaryov, de facto mayor of the city which is controlled by pro-Russian separatists opposed to the central government.

"People who come here as observers for the European community bringing with them a real spy - that is inappropriate," Ponomaryov told reporters.

The group is from the Organization for Security and Cooperation in Europe (OSCE).

Armed separatists in the eastern Ukrainian city of Slaviansk seized a bus carrying international observers from the Organization for Security and Cooperation in Europe on Friday, the interior ministry said earlier.

The group, which included 7 OSCE representatives and five members of the Ukrainian armed forces, was being held in the building of the state security agency (SBU) in the city which has been occupied by pro-Russian separatists.

"Negotiations are going on for their release," a ministry statement said.

This after Ukrainian special forces launched a second phase of their operation in the east of the country on Friday by mounting a full blockade of the rebel-held city of Slaviansk, an official on the presidential staff said.

"Twenty minutes ago ... Ukrainian special forces units began the second stage, which consists of our taking the decision to blockade the city of Slaviansk completely and give no opportunity to bring in reinforcements," Serhiy Pashynsky was quoted as telling reporters by a presidential spokesman.

Pashynsky is chief-of-staff to acting president Oleksander Turchinov. Interfax-Ukraine news agency quoted him adding: "The operation will continue. Its goal is to blockade the terrorists in Slaviansk and not allow casualties among civilians."

This comes as Ukraine, Slovakia and representatives of the European Union will continue talks on reverse gas flows on Friday in Kiev, a spokeswoman for Ukrainian energy ministry said.

Ukrainian and Slovak ministers met European Energy Commissioner Guenther Oettinger on Thursday in Bratislava as Ukraine is trying to start gas shipments from the EU in a bid to reduce its dependence on Russian gas.

Ministers said that Ukraine could sign a deal on Monday allowing the shipment of up to 10 billion cubic meters of gas a year from Slovakia.

Earlier, Ukrainian Prime Minister Arseny Yatseniuk said that Russia wanted to start World War Three by occupying Ukraine "militarily and politically" and creating a conflict that would spread to the rest of Europe.

"Attempts at military conflict in Ukraine will lead to a military conflict in Europe," Yatseniuk told the interim cabinet in remarks broadcast live. "The world has not yet forgotten World War Two, but Russia already wants to start World War Three."

ICC:

The prosecutor of the International Criminal Court opened a preliminary investigation into allegations of crimes against humanity committed in Ukraine in the period leading up to the fall of former president Viktor Yanukovich, the court said in a statement on Friday.

Ukraine is not a member of the world's permanent war crimes court, but has granted the ICC jurisdiction over any crimes that might have taken place on its territory from Nov. 21 to Feb. 22, when the parliament removed Yanukovich from his post.

The new government of Ukraine referred the case to the ICC, alleging that Yanukovich's troops killed more than 100 demonstrators in Kiev and other cities. The referral runs up to the day before Russia's annexation of Crimea, meaning the court would not be obliged to consider the possibility of crimes committed by Russian soldiers or officials.

Court prosecutors will use the preliminary investigation to decide if any of the alleged crimes are of sufficient gravity to warrant a full-blown investigation.

Local Reactions:

Ukraine will regard any incursion by Russian forces across the border as an invasion and the attackers will be killed, an aide to acting president Oleksander Turchinov said on Friday.

"We will consider any crossing of the Ukrainian border by Russian troops into the territory of Donetsk or any other region as a military invasion and we will destroy the attackers," Turchinov's chief-of-staff Serhiy Pashynsky was quoted as saying by Interfax-Ukraine news agency.

"We do not accept false declarations about humanitarian action," he said.

International Reactions:

President Barack Obama and four key European allies agreed on Friday that Russia failed to live up to the terms of the Ukraine peace accord, and would coordinate on a response to "impose costs" on Russia, the White House said.

"The president noted that the United States is prepared to impose targeted sanctions to respond to Russia's latest actions," the White House said in a statement after Obama's conference call with French President Francois Hollande, German Chancellor Angela Merkel, Italian Prime Minister Matteo Renzi, and British Prime Minister David Cameron.

"The leaders agreed to work closely together, and through the G7 and European Union, to coordinate additional steps to impose costs on Russia. The leaders underscored that Russia could still choose a peaceful resolution to the crisis, including by implementing the Geneva accord," the White House said.

For her part, German Chancellor Merkel said that she told Russian President Vladimir Putin that Russia had not done enough to implement the Geneva accord and that further sanctions against Russia must be contemplated.

At a news conference in Berlin with Poland's Prime Minister Donald Tusk, Merkel said Russia has the means to convince the pro-Russian separatists in Ukraine to take a peaceful route.

Earlier, Russian President Vladimir Putin and German Chancellor Angela Merkel called for three-party talks on Russian gas supplies to Europe, now under threat over the crisis in Ukraine, through which much of the gas is piped, the Kremlin said.

Merkel also told Putin in a call she is gravely concerned about eastern Ukraine and expects Russia to honor the agreement struck in Geneva and urge pro-Russia militia to disarm, her spokesman said.

In turn, Russia's Defense Ministry said on Friday it was ready for "unbiased and constructive" talks with the United States to stabilize the situation in Ukraine, Interfax news agency cited a ministry official as saying.

He said there had been no such request from the Pentagon yet, but, but the ministry was prepared for talks "in the interests of situation normalization in Ukraine".

On Friday evening, Russia's foreign minister told his German counterpart that all violence in Ukraine must be halted, "primarily the use of the (Ukrainian) army and armed radical nationalists in southeastern Ukraine," the Russian Foreign Ministry said.

It said that in a telephone conversation, Russia's Sergei Lavrov and Germany's Frank-Walter Steinmeier agreed that an Organisation for Security and Cooperation in Europe mission should play an active role in efforts to defuse tension in Ukraine.

REUTERS

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