Pro-Russia rebels pounded and encircled Ukrainian government forces on Monday, and Kyiv said it would not pull back heavy guns while a truce was being violated, leaving a European-brokered peace deal on the verge of collapse.

The European Union kept pressure on Russia and the rebels by announcing a new list of separatists and Russians targeted with sanctions, to which Moscow promised an "adequate" response.

Fighting subsided in many parts of eastern Ukraine under a ceasefire that came into force on Sunday, under the deal reached last week in marathon talks involving the leaders of France, Germany, Russia and Ukraine.

But the truce appears to have been stillborn in the town of Debaltseve where the most intensive fighting has taken place in recent weeks.

"The situation is fragile," said German Chancellor Angela Merkel, the driving force behind the deal reached on Thursday after all-night talks in the Belarussian capital Minsk.

"It was always clear that much remains to be done. And I have always said that there are no guarantees that what we are trying to do succeeds. It will be an extremely difficult path," she told reporters in Berlin.

CBC News is there

CBC News correspondent Nahlah Ayed is in Eastern Ukraine with producer Tracy Seeley and cameraman Richard Devey and sent this report Monday from outside Debaltseve, where fighting continues despite a ceasefire that was supposed to have taken effect Sunday.

Near Debaltseve, the road is busy with Ukrainian hardware — armoured personnel carriers and mining units straddle two lanes as they head in the direction of the embattled town. We meet a group of Ukrainian soldiers there from the same battalion as those under siege down the road. They have had casualties — some killed, others injured.

There is a sense of frustration here. Not only with Russia for backing the rebels but also with Kyiv for failing to back its own troops strongly enough.

One soldier who had just come back from the front line questioned the military’s orders for troops to remain in Debaltseve. A more senior soldier told us the only way to end the impasse was to eliminate the rebels. There is clearly no faith in the ceasefire here — for those on the front line, it never started. The non-stop shelling continued Monday, answered by outgoing Ukrainian return fire.

The ceasefire will live or die depending on what ultimately happens inside that town.

— Nahlah Ayed

Rebels said soon after it came into effect that they had no intention of observing the ceasefire at Debaltseve, where they have been advancing since January and now have a Ukrainian unit all but encircled.

Washington says the rebel operation around the town, which sits on a strategic railway hub, is being assisted by the Russian armed forces, which Moscow denies.

Reporting from near Kramatorsk, the CBC's Nahlah Ayed said the road was busy with Ukrainian hardware — armoured personnel carriers and mining units straddled two lanes as they headed in the direction of the embattled town.

Ayed and her CBC crew met a group of Ukrainian soldiers who are from the same battalion as those soldiers under siege down the road, and who have seen dead and injured comrades.

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She said there is a sense of frustration, not only with Russia for backing the rebels, but with Kyiv, for failing to back its own troops enough.

One soldier who had just come back from the front line questioned the military’s orders for its troops to remain in Debaltseve. A more senior soldier told Ayed that the only way to end the impasse is to eliminate the rebels.

"There is clearly no faith in the ceasefire here. For them, it never started," Ayed reported.

She said the non-stop shelling continued Monday, answered by outgoing Ukrainian return fire.

"The overall ceasefire will live or die depending on what ultimately happens inside that town," she said.

'There is no ceasefire'

Reuters reported that at least six tanks as well as armoured personnel carriers and artillery could be seen in woods near Vuhlehirsk, 10 kilometres west of Debaltseve, which the rebels captured a week ago.

A soldier with the Kyivskya Rus unit of the Ukrainian military stationed near Debaltseve told CBC News he has no faith in the ceasefire that was supposed to take effect Sunday. He didn't want to give his name because his family is from the region and he fears for their safety. (Richard Devey/CBC) Military trucks headed along the main road in the direction of the town to regular bursts of shelling and the firing of Grad rockets and machine guns.

"You can hear there is no ceasefire," said a rebel fighter with a black ski mask who gave his name as Scorpion, his nom de guerre, and blamed the fighting on Kyiv's forces. "Debaltseve is our land. And we will take Debaltseve."

A rebel commander, Eduard Basurin, said Ukrainian troops had violated the ceasefire 27 times in the past 24 hours.

Kyiv said its forces had been shelled more than 100 times in eastern Ukraine since the truce took effect, five of its servicemen had been killed and 25 wounded, and that it could not carry out an agreement to pull back big guns in such conditions.

"The pre-condition for withdrawal of heavy weapons is fulfilling Point One of the Minsk agreements - the ceasefire. One hundred and twelve attacks are not an indicator of a ceasefire," said a Kyiv military spokesman, Andriy Lysenko.

A rebel leader, Denis Pushilin, responded by saying his forces were "only ready for a mutual withdrawal of equipment".

In another complication likely to set back hopes of peace, he and another separatist leader said the rebels would pull out of the Minsk agreements if Kyiv made any further moves to abandon Ukraine's neutral status — also a red line for Moscow, which fears Ukraine might seek to join the NATO alliance.

Members of the separatist self-proclaimed Donetsk People's Republic army collect parts of a destroyed Ukrainian army tank in the town of Vuhlehirsk on Monday. (Baz Ratner/Reuter)

The separatists offered the Ukrainian forces a safe corridor out of Debaltseve if they gave up their weapons but a military spokesman for Kyiv, Vladislav Seleznyov, ruled this out.

"There are the Minsk agreements, according to which Debaltseve is ours. We will not leave," he said.

Fighting began in east Ukraine after the overthrow of a Moscow-backed president in Ukraine last February and Russia's annexation of the Crimea peninsula a month later.

The West says Putin, who has called parts of Ukraine "New Russia", has sent troops and weapons to back the rebels. Moscow denies this and accuses the West of waging a proxy war in Ukraine to seek "regime change" in Russia.

Hopes that Thursday's deal will end a conflict that has killed more than 5,000 people have been dampened by the collapse of an earlier truce when rebels advanced last month.

Battles for control of the destroyed airport in Donetsk continue in eastern Ukraine. The airport was a major showcase of soccer's Euro 2012 Championship hosted by Ukraine. (Igor Ivanov/Associated Press)

Shelling and gunshots could be heard at the airport in Donetsk on Monday where only the rubble of destroyed buildings remains.

Western countries say they reserve the option of expanding economic sanctions on Moscow over the crisis, hoping a growing financial crisis in Russia will persuade Putin to use his influence with the rebels to stop the fighting. But some fear he wants the conflict to fester for years so that Kyiv cannot control east Ukraine and Russia can retain influence there.

The EU's new list of 19 people and nine organizations hit by asset freezes and travel bans was dominated by Ukrainian separatists but also targeted popular Russian singer Iosif Kobzon, sometimes dubbed Russia's equivalent of Frank Sinatra, and two Russian deputy defence ministers.

"One thing is clear — the decision, which will be followed by an adequate response, runs contrary to common sense and will not help efforts to find a solution to the inter-Ukrainian conflict," the Russian Foreign Ministry said.