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Russia declared itself ready to make peace with Georgia and United Nations officials confirmed Sunday that Georgia is prepared to negotiate with Russia by withdrawing troops from the breakaway province of South Ossetia and creating a safe travel zone.

The UN Security Council met Sunday for the fourth time in as many days trying to resolve a conflict that began when U.S.-allied Georgia tried to control South Ossetia, then said its troops had retreated in the face of Russia's tanks and aircraft.

Council members broke off their three-hour meeting with plans to return either later in the day or Monday.

The U.S. was preparing a draft resolution that would have the council call for an immediate cease-fire and condemn the Russian action. France also had a draft text in the works. The U.S. and Europeans planned to huddle among themselves later Sunday.

Russia, which called the first meeting late Thursday night hours before its tanks rumbled into Georgia, will only act in self-defense said Russian Ambassador Vitaly Churkin.

"Let's state clearly that we are ready to put an end to the war, that we will withdraw from South Ossetia, that we will sign an agreement on non-use of force," Churkin proposed.

However, diplomats said major fighting continued in many areas. Russia also has deployed a naval squadron off the coast of Abkhazia, and its aircraft bombed the outskirts of Tbilisi, the Georgian capital.

Israel: We recognize Georgia's territorial sovereignty

The Foreign Ministry said earlier Sunday that it "recognizes the territorial integrity of Georgia," calling for a peaceful solution to the conflict that began raging with Russia late last week.

The ministry said in a statement it was following with concern the events of the past few days which saw heavy fighting between Russian and Georgian troops.

The statement came just as Georgia notified Russia that its troops have halted military action in South Ossetia, the site of the weekend battles, and was ready to start immediate negotiations with Russia on a cease-fire and ending hostilities.

Russia said shortly after that it had received a Georgian note declaring an end to its military activities South Ossetia, but said fighting was still proceeding in the area.

"We have been handed a note that from 5 A.M. Georgia stopped firing and is withdrawing forces from the conflict zone, but our information does not confirm the Georgian statement," Interfax news agency quoted Russia's Foreign Ministry sources as saying.

"There are indications that exchanges of fire are continuing and the Georgian forces have not been fully withdrawn from the conflict zone."

As the announcement was released, Russian forces took over the South Ossetian capital of Tbilisi and bombed a military airport on the outskirts of the city. Witnesses said that Tbilisi International Airport was also hit in the strike, 200 meters from a runway.

A few hours later, Russia's navy sank a Georgian boat carrying missile launchers after a skirmish at sea, news agencies quoted the defense ministry as saying.

Georgian boats had made two attempts to attack Russian ships which "returned fire, as a result of which one of the Georgian boats launching the attack sank," agencies quoted the ministry as saying.

The reports gave no indication which ships were involved in the incident or where it took place.

The navy earlier said Russian warships originally said to be near Georgian waters had put into Novorossiisk, a Russian Black Sea port to the north.

Israel's Foreign Ministry over the weekend recommended a complete halt to the sale of arms and any security-related equipment to Georgia in light of the recent fighting with Russian forces in the Caucasus.

This would be a further tightening of an arms boycott on Tbilisi around a year after a decision had been made in Jerusalem to limit exports to Georgia only to defensive equipment.

White House: Russia risking ties with U.S. in Georgia offensive

Meanwhile, the United States is preparing to submit a UN Security Council resolution later on Sunday condemning Russian military action against Georgia as unacceptable, a U.S. spokesman said.

The spokesman for the U.S. delegation at the United Nations told Reuters: "We will offer a resolution today that makes clear that the Russian actions in Georgia are unacceptable to the international community."

The White House earlier Sunday warned Russia to halt its attacks on Georgia or risk significant and enduring damage to its relationship with the United States.

Russia expanded its bombing blitz Sunday against neighboring U.S.-allied Georgia. Georgian troops pulled out of the capital of the contested province of South Ossetia under heavy Russian shelling.

The U.S. has called on Russia to stop its military offensive.

Jim Jeffrey, President George W. Bush's deputy national security adviser, said the U.S. has made it clear that, "If the disproportionate and dangerous escalation on the Russian side continues, that this will have a significant long-term impact on U.S.-Russian relations."

Meanwhile, Russia on Sunday accused Western countries and media of a biased pro-Georgian position in the conflict in South Ossetia and said this might hamper future relations with Moscow.

"Western countries behaved strangely in the first hours of aggression towards South Ossetia, they were silent," Deputy Foreign Minister Grigory Karasin told a news conference.

"This raises very serious questions about sincerity and their attitude towards our country and will of course be taken into account in the future when we hold talks and talk about global issues," Karasin said.

Earlier Sunday, Georgia's interior ministry said that the country had withdrawn its forces from breakaway South Ossetia, where they had been fighting Russian troops for control.

The pullout followed three days of fighting in a Georgian push to take control of the pro-Moscow enclave from separatists, which prompted Russia to pour troops into South Ossetia and launch air strikes inside Georgia.

A Georgian military convoy carrying troops and towing heavy artillery was seen withdrawing from South Ossetia through the village of Ergneti, just inside Georgian-controlled territory south of the separatist capital Tskhinvali.

"They have been withdrawn, completely," Georgian interior ministry spokesman Shota Utiashvili told Reuters.

A Kremlin spokesman said: "We saw media reports and are now examining the real situation".

Israel fears Russia would retaliate against Jerusalem

Israel's recommendation to halt defense sales to Georgia stems from concern that Russia would choose to retaliate against Jerusalem for its continued military support of Georgia by lifting restrictions on its arms transfers to Iran and Arab states.

"Israel needs to be very careful and sensitive these days," said a senior political source. "The Russians are selling many arms to Iran and Syria and there is no need to offer them an excuse to sell even more advanced weapons."

The source noted that Israel is particularly interested in the transfer of advanced S-300 anti-aircraft missiles to Iran, and therefore Jerusalem must show restraint in its arm sales to Georgia.

"The day we will want to prevent a future deal with Iran, our hands must be clean," the source said.

Last Wednesday discussions were held at the Foreign Ministry on the crisis in South Ossetia. At the end of the meeting a decision was made to recommend to the Defense Ministry that Israel would avoid the sale of any military equipment to Georgia because the country was now a "combat zone."

The Foreign Ministry also recommends that the issue be revisited after the situation stabilizes and the fighting ceases.

But a final decision on the matter will be made by the Defense Ministry in the coming days.

About six months ago, the Defense Ministry imposed significant limitations on the arms transfers from Israel to Georgia, in view of the growing friction between Tbilisi and Moscow.

The decision followed strong protests by Russian officials over the growing involvement of retired Israeli military and security experts, and the increased procurement by Georgia of Israeli technology and hardware.

According to instructions issued by the office charged with supervising military sales abroad, all sales of offensive equipment were stopped, but defensive equipment and advisers were allowed.

Existing contracts were not canceled, but a long list of new contracts whose negotiations had been completed were not approved.

The decision resulted in protests by Israeli arms exporters, and since then the defense ministry has issued restrictions on the role Israeli advisers can play in Georgia.

One of the firms involved announced on Saturday that all its personnel have been evacuated from Georgia.

Israel is not considered to be one of the main arms suppliers of Georgia. The scope of the defense deals between the two countries stands at $200 million. The two largest suppliers to Georgia are the United States and France.

However, the security ties between the two countries have received a great deal of media attention, in part because of the capture, on film, of a Russian jet downing an Israeli-made drone in Georgian service, and the role that senior retired Israeli officers have played as advisers to the Georgian security forces.