Updated Aug. 28, 2014 5:46 p.m. ET
Russian President Vladimir Putin answering questions after talks with Ukrainian President Petro Poroshenko in Minsk, Belarus, early Wednesday. European Pressphoto Agency
MOSCOW—Steadily ratcheting up Moscow's intervention in Ukraine, Vladimir Putin seems to be betting that keeping that former Soviet republic in Russia's sphere of influence is much more important to Moscow than pulling Kiev westward is to the U.S. and its European allies.
But while the U.S. and Europe have ruled out any direct military intervention to defend Ukraine, Moscow's moves this week to send hundreds of its own troops there to fight alongside pro-Russia separatists represent a risky new escalation.
"Putin is behaving more and more unpredictably," said Boris Makarenko of the Center for Political Technologies, a Moscow political consultancy. "What was impossible to imagine even as a nightmare scenario just a year ago—Russian and Ukrainian soldiers fighting each other on the battlefield—already appears to be happening."
Moscow denies that any of its troops are fighting in Ukraine, with officials saying the handful that Ukrainian forces have captured in recent days were there "by accident."
But Ukrainian President Petro Poroshenko said Thursday that Russian forces had opened a new front against Ukrainian units fighting in the eastern border region, in what he said appeared to be an effort to prevent Kiev from defeating the separatists.
The North Atlantic Treaty Organization corroborated what it called an "incursion" to reverse Kiev's recent battlefield gains, rather than an invasion aimed at seizing more territory, as Russia did in Crimea in March.
Moscow's goal this time appears to be to force Kiev to suspend its military operation, leaving the separatists in control of a swath of Ukrainian territory. That would pave the way for talks on regional autonomy and political decentralization that would likely stall any push by Mr. Poroshenko's government to build closer ties to the West.
"It is clear that Russia is not willing to accept the defeat of the separatists," said Brigadier Gen. Nico Tak, head of NATO's crisis management center."Russia's ultimate aim is to alleviate pressure on separatist fighters, to 'freeze' this conflict."
This week's military drive by Russian and rebel forces in the south of the Donetsk region toward the port city of Mariupol would give the separatists access to supplies from the sea. That could be critical to keeping the rebels going if Ukraine were able to restore control over the land border, a likely element of any future negotiated solution.
"Putin will obviously look to see how the West reacts," said Thomas Graham, a former White House specialist on Russia. "I presume he expects nothing more than more sanctions, the routine condemnatory statements and statements about what NATO is going to do to reassure allies, particularly the Balts. That will not stop him from doing what he is now doing in Ukraine."
Ultimately, said Steven Pifer, a former U.S. ambassador to Ukraine now at the Brookings Institution, "Putin can escalate probably more than the Ukrainian army can resist."
But he said further Western sanctions, as well as granting Kiev's requests for military equipment that could help it reverse the rebels' gains, could "drive up the cost to the Russians to the point they begin to think is there another way out."
While Mr. Putin enjoys huge domestic support for what is seen as standing up to the West and defending Russia's interests, a major escalation, or a prolonged military intervention that led to many Russian casualties, could become problematic.
Public-opinion polls show backing for direct military intervention has slipped as the fighting has dragged on, with 61% opposing it in a July poll.
This week, reports have trickled out across Russia of dead servicemen returning from the fighting in Ukraine to secret burials. The Kremlin's human-rights watchdog Thursday issued a rare formal request to military prosecutors to investigate, while a member of presidential advisory panel said relatives of military men reported as many as 100 had died in fighting in Ukraine this month.
The Western economic sanctions haven't hurt ordinary Russians directly, economists say. But surging capital flight, a flatlining economy and a currency that fell to six-month lows against the dollar Thursday will ultimately erode confidence.
"In the short term, there won't be any immediate, strong effect," said Mr. Makarenko of the Center for Political Technologies. "But sanctions are a reality, capital flight is a reality, inflation is a reality and no politician can ignore them."
But other Kremlin watchers say that even future economic hardship could play into Mr. Putin's hands domestically. Russian economic growth was moribund before the Ukraine crisis, but now the Kremlin can blame sanctions from the West, which state television has portrayed as unfairly punishing Russia for its rightful annexation of Crimea.
As a retaliatory measure to the sanctions, the Kremlin slapped a ban on some imported foodstuffs, a populist gesture since few ordinary Russians bought them anyway.
The Kremlin's audacious move this week to reverse the separatists' losses on the battlefield appears aimed at shocking Kiev into concessions. But Mr. Poroshenko showed no signs of being ready to give in.
"Ukraine is capable of defending itself," Mr. Poroshenko told an emergency meeting of security chiefs in Kiev, as their troops took up positions around Mariupol.
As the military campaign has dragged on for months, with hundreds of soldiers and volunteers, as well as civilians, dying, popular support in Kiev for fighting on to victory has grown, leaving Mr. Poroshenko little room to compromise.
At present, said Mr. Pifer of Brookings, "You've got Poroshenko and Putin now being compelled toward a military solution."
—Naftali Bendavid contributed to this article.
Write to Gregory L. White at greg.white@wsj.com and Alan Cullison at alan.cullison@wsj.com
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