By Adrian Croft and Lesley Wroughton
BRUSSELS/SLAVIANSK, Ukraine (Reuters) - Russian President Vladimir Putin's response to a peace plan for Ukraine will decide whether the United States and Europe step up sanctions, U.S. Secretary of State John Kerry said on Wednesday.
The United States was delighted that Putin had asked the upper chamber of Russia's parliament to retract a law enabling him to intervene militarily in Ukraine, Kerry said, "but it could be reversed in 10 minutes."
Putin should prove his commitment to peace in Ukraine, Kerry told a news conference after NATO foreign ministers met.
"Until Russia fully makes that kind of commitment to the peace process and to the stability of Ukraine, the United States and Europe are compelled to continue to prepare greater costs, including tough economic sanctions, with the hopes that they will not have to be used."
"But that is dependent on the choices that Russia and its president make in the next days and weeks," he said.
EU leaders are due to meet in Brussels on Friday and could consider more economic sanctions against Russia if it fails to support Ukrainian President Petro Poroshenko's peace plan.
A senior Obama administration official said last Friday that the United States had stepped up talks with the European Union about imposing additional sectoral sanctions on Russia because of the flows of Russian military equipment to Ukraine.
The official, speaking on condition of anonymity, said the sanctions would be targeted primarily at the financial, defense and high technology sectors.
Kerry said the United States and its allies were preparing sanctions in case the peace effort in Ukraine failed.
"We believe it is critical for President Putin ... to stop the flow of weapons and fighters across the border, to call publicly for the separatists to lay down their arms, to pull Russian forces and equipment back and to help get OSCE hostages released," he said, referring to Organisation for Security and Cooperation in Europe monitors held in Ukraine.
Many Russian-speakers in Ukraine have been alienated by a wave of Ukrainian nationalism since Moscow-backed president Viktor Yanukovich was toppled in February.
Moscow denies Western accusations that it has allowed fighters to cross into Ukraine along with heavy weapons to confront government forces.
Kerry said a Ukrainian helicopter that crashed on Tuesday, killing nine people, was shot down with a Russian shoulder-launched missile.
German Foreign Minister Frank-Walter Steinmeier urged Russia to take a clear position on the shooting down of the helicopter.
"There must also be an announcement of detailed steps toward a cooperation with Ukraine or possibly the OSCE," he said.
"If economic sanctions become necessary, we are prepared."
British Foreign Secretary William Hague warned that the case for tougher EU sanctions on Moscow would strengthen unless Russia acted to defuse violence in eastern Ukraine and to support Poroshenko's peace plan.
The ministers agreed to prolong a suspension of practical cooperation with Russia that NATO announced in April in protest at Russia's annexation of Ukraine's Crimea region.
Russia continued to be in breach of its international commitments, including a 1997 agreement with NATO, because of its actions in Ukraine, a NATO official said.
Canadian Foreign Minister John Baird said what was needed from Moscow was "less talk and more tangible action."
"The reality of their covert efforts on the ground are indisputable ... It will not be business as usual as long as they continue to take that course of action," he told Reuters.
NATO ministers endorsed measures to help Ukraine including setting up new trust funds, worth around 12 million euros ($16.4 million), to improve Ukrainian military capabilities in logistics, cyber security and command and control.
(Additional reporting by Sabine Siebold; Editing by Ruth Pitchford)