* Russia recognises South Ossetia, Abkhazia as independent * Bush says regions must stay part of Georgia * Western powers, NATO and EU also condemn Moscow's action By Denis Dyomkin SOCHI, Russia, Aug 26 (Reuters) - Russia recognised two rebel regions of Georgia as independent states on Tuesday, driving up tension in the volatile Caucasus and putting Moscow on a collision course with the West. Russian President Dmitry Medvedev said Tbilisi's desire to seize back Abkhazia and South Ossetia by force had killed all hopes for their peaceful co-existence in one state with Georgia. But, leading a chorus of Western condemnation of the move, U.S. President George W. Bush said the two regions were part of Georgia and "they must remain so". "Russia's action only exacerbates tensions and complicates diplomatic negotiations," Bush said in a statement. Georgian President Mikheil Saakashvili called the Russian move "completely illegal" and the United States said any attempt to seek U.N. Security Council blessing would be "dead on arrival". NATO and European powers also criticised the decision. Medvedev, in a statement from his summer residence in the resort of Sochi, accused Saakashvili of choosing "genocide" to solve his political problems. "The peoples of South Ossetia and Abkhazia have more than once spoken in referenda supporting the independence of their republics. We understand that after what had happened...they have the right to decide their fate themselves. Russian tanks and troops are still occupying parts of Georgia after a brief war over South Ossetia earlier this month -- the first time Moscow has sent troops into another country since the end of the Soviet Union in 1991. "This is probably one of the biggest crises we have seen since the end of the Cold War, since the start of the 1990s," German Foreign Minister Frank-Walter Steinmeier said at an SPD party event in eastern Germany. EUROPEAN CONDEMNATION In an interview with CNN, Medvedev said Russia would help defend Abkhazia and South Ossetia if they were attacked and said Moscow had no plans to intervene militarily in other conflicts in former Soviet states. "As far as involvement in other conflicts is concerned, we naturally are not going to do this," Medvedev told CNN. "But Russia is a state which has to ensure its interests along the whole length of its border, this is absolutely clear." German Chancellor Angela Merkel said Russia's recognition of the rebel regions was "absolutely unacceptable" and Britain "categorically rejected" the decision. EU president France said the bloc wanted a political solution. "It (the EU) will examine the consequences of Russia's decision from this point of view," President Nicolas Sarkozy's office said. A spokeswoman for U.N. Secretary-General Ban Ki-moon said he feared Russia's move might complicate Security Council efforts to find a solution to the crisis. The value of Russian assets tumbled as tension grew between Moscow and the West. Ratings agencies foresaw a knock-on effect across eastern Europe as far as Poland. But Medvedev said he believed the Georgia conflict was not the main reason for the market plunge. "As far as outflows go, of course a military campaign always has a negative effect, but what is happening on our market is significantly, to a greater degree, linked to what is happening on international financial markets," he told Al-Jazeera television. LIMITED OPTIONS The West's ability to punish Russia is limited. United Nations sanctions against Russia are out of the question as Russia has a veto in the Security Council. Major powers are also wary of any action that might make Russia withdraw its support against Iran over its nuclear programme and transit support for NATO forces in Afghanistan. Retaliation could involve excluding Moscow from the Group of Eight (G8) top industrial democracies or blocking its bid to join the World Trade Organisation (WTO). Medvedev told the Kremlin-controlled Russia Today television channel, he was not frightened of worsening relations. "Nothing scares us, including the prospect of a Cold War, but we don't want it," Medvedev said. "In this situation, everything depends on the position of our partners." He said Russia was not blockading Georgia but cast doubt on the nature of the U.S. aid shipments to its ally. "What the Americans call humanitarian cargoes -- of course, they are bringing in weapons," he told the BBC in an interview, adding: "We're not trying to prevent it." A U.S. spokesman said Medvedev's charge was "ridiculous". The USS McFaul and one more vessel were due to dock in Georgia's Poti port on Wednesday with humanitarian aid. But a source close to the U.S. embassy in Tbilisi later said the plan, which was sure to enrage Russians whose forces patrol Poti, was scrapped. "The ships will not dock in Poti tomorrow," the source said. In the Abkhaz capital Sukhumi, jubilant residents fired shots into the air, uncorked champagne bottles and wept after the news from Moscow. (Additional reporting by Oleg Shchedrov in Moscow and Indira Bartsits in Sukhumi; writing by Michael Stott and Jon Boyle in Moscow; Editing by Richard Balmforth)
A Russian armoured vehicle leaves the tunnel in the territory of South Ossetia as it heads towards the Russian border, August 26, 2008. Georgians on the streets of Tbilisi reacted defiantly ...
International Humanitarian Law
