US President Barack Obama and German Chancellor Angela Merkel spoke late Tuesday to discuss a proposal to bring international inspectors to Ukraine in order to end the crisis in the country.

According to Reuters, the proposal would have Russia scale back the number of troops it has stationed in Crimea to 11,000 and allow international inspectors to guarantee the rights of the Russian ethnic minority in the region. Meanwhile, the Russian government would hold direct talks with the new Ukrainian leadership, possibly with international mediation. In May, elections would be held in Ukraine.

During their phone conversation, Obama reiterated to Merkel that he would not be attending the G8 summit in Sochi in June if the current situation continues. Both leaders reportedly expressed “grave concern” over Russian President Vladimir Putin’s “clear violation of Ukrainian sovereignty and territorial integrity.”

A White House press statement said the two “agreed on the importance of de-escalating the situation, including through the deployment of international observers and human rights monitors, and of initiating direct talks between Russia and Ukraine.”

Meanwhile Tuesday, Obama said Russia was not “fooling anybody” over the Ukraine crisis after it denied its forces were operating in Crimea, as Secretary of State John Kerry prepared to meet his Russian counterpart Wednesday.

In a show of support for the new interim leaders in Kiev Tuesday, Kerry condemned Russia’s “act of aggression” and accused Moscow of “working hard to create a pretext for being able to invade further”.

Pro-Kremlin forces are in de facto control of the strategic, majority-Russian Crimean peninsula, where Ukrainian troops remain blocked inside their barracks in the most serious stand-off between the West and Russia since the end of the Cold War.

Ukraine’s interim Prime Minister Arseniy Yatsenyuk announced his government had made the first “timid” contacts with Russian leaders aimed at resolving the crisis.

But the rhetoric from the United States and Russia remained tough.

Obama said the European Union and allies like Canada and Japan all believed Russia had violated international law by mobilizing troops following the February 22 ouster of pro-Kremlin president Viktor Yanukovych.

“President Putin seems to have a different set of lawyers, maybe a different set of interpretations. But I do not think that is fooling anybody,” Obama said during a visit to a school in the US capital.

Putin, breaking more than a week of silence with a press conference in Moscow, said his country reserved the right to use “all available means” to protect Russians in Ukraine. “This is a last resort,” he added.

Responding to claims by Ukraine’s new authorities that thousands of Russian troops had poured into Crimea in recent days, Putin said that only “local forces of self-defense” were surrounding Ukrainian military bases in the region.

Asked if Russian forces took part in operations in Crimea, he said: “No, they did not participate”, adding: “There are lots of uniforms that look similar.”

When told of Putin’s remarks by a reporter in Kiev, Kerry responded: “He really denied there were Russian forces in Crimea?” and shook his head, bewildered.

The top US diplomat is set to meet Russia’s Foreign Minister Sergey Lavrov in Paris on Wednesday, the first such meeting since the Crimea crisis started.

Separately, Kerry is to hold three-way talks with British Foreign Secretary William Hague and acting Ukrainian Foreign Minister Andrii Deshchytsia.

Lavrov will also meet the foreign ministers of Britain, France and Germany at the Paris meeting of the International Support Group for Lebanon.

Diplomats were expecting terse exchanges following German Foreign Minister Frank-Walter Steinmeier’s admission on Tuesday that there is no solution to the crisis in sight.

Amid the tensions, Russia carried out a successful test launch of an “advanced” intercontinental ballistic missile, state news agencies reported. The US was informed of the test earlier this week, a US defense official said.

There was no immediate sign of calm returning to Crimea, which has housed the Russian Black Sea Fleet since the 18th century.

In one incident, Russian forces fired warning shots in the air as unarmed Ukrainian soldiers approached them at a base near Sevastopol, in what appeared to be the first shots fired since the Crimean crisis erupted.

In Sevastopol, a bastion of pro-Kremlin sentiment, the headquarters of the Ukrainian navy in Crimea was surrounded by around 100 pro-Russian activists who formed a human chain as Russian forces with automatic rifles looked on.

Ukrainian defense officials said Russian vessels were also blocking Ukrainian warships from trying to leave the port.

There may not be any fighting in Ukraine yet, but as tensions ratchet up in Crimea, young men in Kiev were queuing to sign up for military service, ready to take up arms if it comes to a war with Russia.

“I want to take part in the fight,” said Roman Surzhikov, a 33-year-old engineer and army reservist, one of a steady stream of people going into an army recruitment centre in the city on Tuesday, despite a “closed” sign outside.

In a sign of profound Western frustrations with Russia, Kerry warned that unless Russia acts to reduce tensions, it will face further international action after the US already suspended military cooperation.

A US official travelling with Kerry said Russia was “likely” to face US moves to introduce sanctions as early as this week. The EU has also threatened “targeted measures”.

In Paris, French President Francois Hollande warned that Russia was “running the risk of a dangerous escalation”.

But Putin warned that any sanctions would lead to “mutual losses”.

Also on Wednesday, EU foreign policy chief Catherine Ashton will visit Kiev ahead of an EU emergency summit on Ukraine on Thursday.

But Washington and its allies appear to have few options beyond limited punitive measures to halt what they perceive as Putin’s drive to rebuild vestiges of the Soviet empire, irrespective of the wishes of nations such as Ukraine.