Fears are mounting that Syria may be on the verge of civil war as reports emerged yesterday that hundreds of army deserters were battling Bashar al-Assad's forces in the first major confrontation against the regime.

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With an intensification of violence looking increasingly likely, Britain and its EU allies have been forced to drop calls for immediate UN sanctions against Syria after major powers failed to agree upon a suitable course of action.

The UK, along with France, Germany and Portugal, circulated a heavily-diluted draft Security Council resolution condemning the Baathist regime in Damascus.

But calls for immediate sanctions were scrapped in the face of Russian and Chinese opposition. Delegates hoped that the weaker document, which demanded an "immediate end to all violence", would eventually be approved by the two veto-wielding members.

One Syrian lobbyist, who was in New York yesterday pushing for firmer action, criticised the proposed resolution as "basically useless". "In reality, it is very weak," said Wissam Tarif, executive director of the Insan human rights organisation. "It doesn't mention the International Criminal Court and it doesn't mention an arms embargo."

A series of European and US-sponsored sanctions against the Syrian regime are already in place, but no measures have yet been approved at the UN.

The developments in New York came as heavy fighting continued in the central Syrian town of Al-Rastan, an opposition stronghold which has become a bolthole for army deserters. Activists said that at least 1,000 former soldiers and armed citizens were now waging a battle against security forces, who were laying siege to the town backed up by tanks and helicopter gunships.

According to New York-based human rights organisation Avaaz, the Syrian regime was even deploying jets to bomb the town of 40,000 people, a claim that was repeated by at least two activist organisations monitoring the violence.

A third group said the jets had dropped poison gas, though it was impossible to verify either of the claims. Speaking to Avaaz, one witness said: "In Rastan they're using military jets to shell their own people."

Elsewhere in the town, there were reports of tanks shelling homes, helicopters strafing neighbourhoods with heavy machine guns, and electricity and water supplies being severed.

Nadim Houry, senior researcher for Human Rights Watch in Beirut, said he had heard reports of jets over Al-Rastan but had received no information about bombs being dropped. If the claim is true, it would mark a serious escalation of the violence. It will also heighten concerns that Syria is slipping into a Lebanese-style conflict that could seriously destabilise the region.

Radwan Ziadeh, a Syrian exile and prominent opposition voice, said the fighting in Al-Rastan highlighted the need for firmer international action.

"This is why we need a no-fly zone," he said, adding that such a measure would provide a much-needed safe haven for defecting troops.

Britain's minister for the Middle East, Alistair Burt, said: "If ever there was a stark reminder that the UN must take further action, this is it."

Although Syria's protest movement has been largely peaceful since unrest erupted in March, recently there have been numerous reports of mutinous troops cobbling themselves together into rebel groups. The area around Homs, the central Syrian city about 10 miles south of Al-Rastan, has seen the greatest number of desertions. Some of the bloodiest crackdowns on protesters have happened in the region. The battle in Al-Rastan is the first major confrontation between deserters and the regime, though the majority of troops still remain loyal to the army.

Even so, activists have told The Independent that some protesters, in the face of brutal state-sponsored violence, are now looking to arm themselves. "People are looking for contacts and finance," said one, who asked not to be named. Yesterday's continuing violence came as Human Rights Watch called for a UN investigation into the decapitation of an 18-year-old Syrian woman.