The shooting down of Malaysia Airlines flight 17 has confronted Vladimir Putin with a dilemma he had sought to avoid: to continue to support the separatist insurgency in Ukraine in the face of a storm of international outrage, or cut the rebels off and allow them to be defeated by the government in Kiev.

Until the plane was hit by an anti-aircraft missile on Thursday, killing nearly 300 people, the Russian president had tried to hedge his bets according to circumstances on the battlefield and western pressure. He moved troops and tanks away from the border after the Ukrainian presidential elections in May, but moved them back in recent weeks.

Similarly, he initially appeared to distance himself from the rebels until Ukrainian forces under the newly elected president, Petro Poroshenko, made significant gains in the east, triggering a new supply of Russian equipment over the border, including anti-aircraft missiles.

The MH17 disaster forces his hand. Anything he does now will attract much more scrutiny. Arms shipments across the very porous Ukrainian border, which had until now been a threat to the Ukrainian armed forces, will henceforward be seen as a direct threat to the international community and a trigger for global outrage. But pulling the plug on the separatists would leave them vulnerable to Ukrainian forces, which can be expected to seize the opportunity to crush the revolt, handing a strategic defeat to Putin.

The early pointers suggest he is hesitating between the two options. While Russian media quickly accused Ukraine of shooting down the plane – even floating a theory that Kiev thought it was targeting Putin's own plane – neither the president nor his top officials have followed that line explicitly.

In the fullest exposition of the Russian position so far, the country's envoy to the United Nations, Vitaly Churkin, blamed the tragedy on the Ukrainian conflict in general, and Kiev and its western backers for stoking of the conflict. Churkin also questioned why Ukrainian air traffic controllers had allowed the Malaysian plane to fly over eastern Ukrainian airspace, but did not address direct responsibility for the shooting down itself. With a wealth of details emerging from the region building a compelling case against the separatists, the Kremlin has kept its powder dry. The foreign minister, Sergei Lavrov, followed suit, telling Rossiya 24 TV channel: "The tragedy may sober up those who give up obligations over the political process." He also stopped short of assigning immediate blame. Putin himself called for a new peace initiative.

It is likely that this initial demurral is intended to buy time so the international response can be measured before Putin makes a strategic choice.

It is already clear from Friday's UN security council meeting that if the rebels are found to have carried out the outrage with a Russian weapon, Moscow will find itself more isolated than at any time in its recent history. Nobody around the council table spoke up in support of Churkin.

The concerted western response is to build the circumstantial case against the Russian-backed separatists while awaiting an international inquiry. If that investigation confirms the early suspicions, one western option would be to declare the rebel Donetsk People's Republic (DNR) a terrorist organisation, said Ben Judah, the author of Fragile Empire: How Russia Fell In and Out of Love with Vladimir Putin.

"Putin's greatest worry is that [the US] Congress will deem the DNR a terrorist organisation, responsible for the worst attack on a civilian airliner since 9/11, which would make Russia a state sponsor of terrorism.

"He will do anything possible to avoid that wrath, while not admitting anything," Judah said.

"Meanwhile, this is a huge failure for GRU [Russian military intelligence], the FSB [the secret police] and the special forces. What kind of people are not capable of distinguishing a Malaysian airliner in the sky? It would not be surprising if the people involved were drunk. So heads will likely roll in the security forces."

Stephen Sestanovich, a former US ambassador to Moscow now at Columbia University, said that Putin's past behaviour made it difficult to predict which path he would take.

"This is the problem with Putin mind-reading," he said, adding that Putin had alternated between prudent and reckless behaviour.

"Even before the shoot-down there were some signs of diminished Russian enthusiasm for the whole project. Russian public opinion is going off it and support for separatism inside Ukraine is less than originally thought. But Russia kept the supply of weapons going," Sestanovich said.

"You would think that this disastrous result would wake up Russian officials and make them see this was even more of a loser than they thought. But Putin doesn't like to be put in a corner. He's very humiliation-conscious,"he said, "and doesn't like to feel he's backed down."