An Arab League committee on Thursday gave Syria 24 hours to agree to allow an observer mission into the country, or it could face sanctions that include stopping financial dealings and freezing assets.
The bloodshed in the country continued, with activists reporting at least 15 people killed, including civilians and security forces.
Thursday's threat was a humiliating blow to Damascus, a founding member of the Arab League. It comes as international pressure mounts on President Bashar Assad to stop the brutal crackdown on an uprising against his regime. The U.N. says has at least 3,500 have been killed since mid-March.
Syria is the scene of the bloodiest crackdown against the Arab Spring's eruption of protests. Deaths in Egypt, Tunisia and Yemen have numbered in the hundreds. Libya's toll is unknown and likely higher than Syria's, but that conflict differed: Early on it became an outright civil war between two armed foes.
The Cairo-based Arab League called on Damascus to agree to an observer mission by Friday, or else the League will meet Saturday to decide on sanctions. In a statement released after the committee met, the group said punishment could include ceasing trade with the Syrian government apart from strategic goods that affect the Syrian people. Other sanctions could include stopping flights to Syria and ending dealings with Syria's central bank.
The Arab League already has suspended Syria's membership over the bloodshed and Syria's failure to abide by an Arab peace plan it signed.
Thursday's meeting took place in a hotel rather than at the League's headquarters in the central Tahrir Square, where there have been clashes between Egyptian security forces and protesters calling for the ruling military to step down.
Also Thursday, the European Union said protecting civilians caught up in Syria's crackdown on anti-government protests "is an increasingly urgent and important aspect" of responding to the bloodshed there.
Alongside the diplomatic efforts, violence continued, with clashes reported between troops and army defectors near the town of Rastan and in Houla, both in the restive central province of Homs. The province has been one of the most volatile regions throughout the uprising.
The British-based Syrian Observatory for Human Rights and the Local Coordination Committees said the toll included at least four civilians.
"Protection of civilians in Syria is an increasingly urgent and important aspect of responding to the events in country," Maja Kocijancic, an EU spokeswoman, said in a statement.
The 27-nation bloc stopped short of endorsing French Foreign Minister Alain Juppe's call for EU-backed humanitarian corridors to allow aid groups a way in.
Juppe called the situation in Syria "no longer tenable" and accused Assad's regime of "repression of a savagery we have not seen in a long time."
He told France-Inter radio he was in contact with partners in the United Nations, U.S. Secretary of State Hillary Rodham Clinton and the Arab League about the possibility of setting up the humanitarian corridors.
Juppe suggested that aid groups like the Red Cross could use the corridors to bring medical supplies to cities like Homs.
Juppe first made the proposal after meeting with the leader of the opposition Syrian National Council on Wednesday.
France, Syria's one-time colonial ruler, was the first country to formally recognize Libya's opposition in an early stage of Moammar Gadhafi's crackdown on protests, and France played a prominent role in the NATO-led campaign of airstrikes against Gadhafi's forces.
Last month, Russia and China vetoed a Western-backed U.N. Security Council resolution condemning the bloodshed in Syria. They have argued that NATO misused a previous U.N. measure authorizing the use of force to protect civilians in Libya to justify months of air strikes and to promote regime change.
They expressed fears that any new resolution against Syria might be used as a pretext for a similar armed intervention.
Associated Press writers Maamoun Youssef in Cairo and Slobodan Lekic in Brussels contributed to this report.