By Adrian Croft and Barbara Lewis
BRUSSELS (Reuters) - European Union leaders will threaten Russia with new sanctions over Ukraine on Saturday but, fearful of a new Cold War and self-inflicted harm to their own economies, should give Moscow another chance to make peace.
At a summit in Brussels that may hand one of the Union's top jobs to Poland's premier and give hawkish Kremlin critics in ex-communist Eastern Europe new influence in the bloc, EU officials gave Ukraine's embattled President Petro Poroshenko a warm welcome and assurances of further economic and other support.
But divisions among the 28 EU nations have hampered action against Moscow, and a draft of Saturday's final statement indicates that they will merely ask the bloc's executive arm "urgently" to prepare more options for sanctions.
French President Francois Hollande stressed that a failure by Russia to reverse a flow of weapons and troops into eastern Ukraine would force the bloc to impose new economic measures.
"Are we going to let the situation worsen, until it leads to war?" Hollande said at a news conference. "Because that's the risk today. There is no time to waste."
British Prime Minister David Cameron said: "We have to address the completely unacceptable situation of having Russian troops on Ukrainian soil. Countries in Europe shouldn't need to think long before realising just how unacceptable that is. We know that from our history.
"So consequences must follow if that situation continues."
"WAR AGAINST EUROPE"
The president of formerly Soviet Lithuania, an outspoken critic of Vladimir Putin and of EU hesitation to challenge him, called for urgent military supplies to Kiev and a tougher arms embargo on Russia. Dalia Grybauskaite said Moscow, by attacking Ukraine, was effectively "in a state of war against Europe".
But large Western countries are wary of damaging their own economies through sanctions. Those include Germany, Britain and France, as well as Italy, which is heavily dependent on Russian gas and expects to secure the post of EU foreign affairs chief.
Poroshenko gave short shrift to Moscow's denials by denouncing the past week's incursion of thousands of troops with hundreds of armoured vehicles and said he expected the summit to order the European Commission to prepare a new set of sanctions.
But, like Commission President Jose Manuel Barroso, he used their joint news conference to stress a will to find a political solution to a crisis that President Putin blames on Kiev's drive to turn the ex-Soviet state away from its former master Moscow and toward a Western alliance with the EU and NATO.
He said he was not looking for foreign military intervention and expected progress toward peace as early as Monday - because failure could push the conflict to a point of no return: "Let's not try to spark the new flame of war in Europe," he said.
Barroso also warned of the risk of a "point of no return" in stressing that EU leaders wanted to defuse the confrontation with their nuclear-armed neighbour.
"It makes no sense to have ... a new Cold War," Barroso said. Further conflict would hurt all of Europe, he said, adding that sanctions were meant to push Moscow to talk. His Commission already had prepared a number of options for further measures.
DEAL IN MAKING
Poroshenko also met Herman Van Rompuy, president of the European Council whose replacement is due to be decided at the summit, starting at 5 p.m. (1500 GMT).
Diplomats said Polish Prime Minister Donald Tusk had broad support for Van Rompuy's job, eclipsing former frontrunner, Danish Social Democrat Prime Minister Helle Thorning-Schmidt.
Many officials in Brussels expect a deal that will balance the interests of left- and right-wing factions across the bloc, eastern and western states, northern Europe and the south, as well as satisfy pressure for more women in senior EU roles.
With Tusk, a conservative easterner, replacing the Belgian Van Rompuy, Italian Foreign Minister Federica Mogherini from the centre left would take over as the bloc's foreign policy chief, replacing Briton Catherine Ashton.
In overall charge of the executive Commission, in succession to Barroso, will be conservative former Luxembourg premier Jean-Claude Juncker, appointed at a stormy summit two months ago.
Eastern leaders, alarmed by a resurgent Moscow, had resisted the appointment of Mogherini at that time. At 41 and in government only since February, they saw her as lacking the political experience and weight to stand up to the Kremlin and also handicapped by Italy's dependence on Russian energy.
However, the emergence of support for Tusk as president appears to have forged the makings of a consensus, diplomats and officials said. That would rule out Thorning-Schmidt - who like Tusk has never publicly declared herself a candidate.
Fellow socialists, meeting earlier on Saturday in Paris at the invitation of Hollande, formally endorsed Mogherini for the foreign policy job but took no common position on the Council presidency - an omission that appeared to reflect acceptance of a left-right split on the top jobs between Tusk and Mogherini.
Nonetheless, opposition from the likes of Lithuania to Mogherini could still disrupt proceedings. One alternative line-up, according to diplomats involved in the discussions, could see Thorning-Schmidt lead the Council and conservative Polish Foreign Minister Radoslaw Sikorski run foreign affairs.
Van Rompuy, whose responsibility it is to try to find ways for the 28 leaders to reach joint decisions, was in contact with them in the run-up to the summit. But a final agreement is unlikely to emerge until they meet in person later on Saturday.
Other elements in striking a deal on the top jobs will be understandings reached on further key roles in the Commission, which will be formed in the coming weeks by Juncker.
His appointment at the last summit in late June followed an acrimonious attempt by British Prime Minister David Cameron to block Juncker, whom London sees as too keen on centralising powers in Brussels - a movement Cameron wants to reverse and over which he has warned that Britain might even quit the Union.
Britain, France, Germany and other countries are competing to see their nominees secure important portfolios in Juncker's team, such as in economic affairs, trade and energy supply.
The horse-trading over jobs underlines the power of rival national governments over the supranational institutions of the EU. Proponents of a strong political leadership in Brussels that can inspire and rally an increasingly sceptical European public behind the common project may again be left disappointed.
Italian Prime Minister Matteo Renzi said on Friday he would propose a meeting to discuss tackling the "really worrying" economic situation across Europe, with growth and jobs elusive and fears of a new crisis for the euro currency.
The leaders agreed to schedule that summit for Oct. 7, according to the draft statement.
Germany, the leading economic power, has given signs this week of softening its opposition to calls from Italy and France for more leeway to stimulate growth by government spending. The leaders may make statements on the issue on Saturday.
Hollande said EU states had to invest to promote growth and to use "all possible flexibilities" in the treaties that set up the currency union so that efforts to meet obligations to curb public deficits were adapted to foster economic growth.
(Additional reporting by Alastair Macdonald, Julia Fioretti, Martin Santa, Jan Strupczewski and Foo Yun Chee in Brussels; Writing by Alastair Macdonald; Editing by Andrew Roche)