Georgia and separatists in breakaway South Ossetia agreed to talks scheduled for Friday after days of heavy fighting raised fears of new war in the volatile Caucasus.
In a dramatic address, Georgian President Mikheil Saakashvili on Thursday offered the separatists an immediate ceasefire following fighting in which Tbilisi said up to 10 Georgian peacekeepers and civilians had been killed.
Separatists said two civilians were killed.
Moscow said the fighting had stopped and the two sides had agreed to talk at the Russian peacekeeping base in the separatist capital Tskhinvali on Friday.
The United States, European Union and United Nations all called for calm and dialogue.
South Ossetia and Abkhazia enjoy Russian political and financial backing, but ex-Soviet Georgia has allied itself with the West and is pushing for NATO membership. The country lies at the heart of a region emerging as a vital energy transit route.
Fifteen years after South Ossetia and the Black Sea region of Abkhazia first fought to break away from Georgian rule, soaring tensions had raised the spectre of full-blown conflict.
Explosions and gunfire could be heard on Thursday from villages around Tskhinvali, 100 km (60 miles) north of the Georgian capital Tbilisi towards the mountainous Russian border.
Russia and Georgia both said fighting had ceased. The commander of Russian peacekeepers, Marat Kulakhmetov, said a truce had been agreed. Georgia said there had been no formal agreement but that the fighting had stopped.
"I offer you an immediate ceasefire and the immediate beginning of talks," Saakashvili said in a televised address.
He said he had issued an order not to retaliate.
"It was a painful decision, but we have suffered casualties and villagers' homes have been damaged," he said.
Saakashvili repeated an offer of full autonomy for the breakaway region, with Russia as the guarantor, he said.
Russian mediator Yuri Popov said the two sides would hold Moscow-mediated talks on Friday in Tskhinvali.
A Georgian armoured personnel carrier (APC) was destroyed in fighting around the Georgian-held village of Avnevi.
U.N. Secretary-General Ban Ki-moon called on the two sides to refrain from any action that could escalate the situation.
EU foreign policy chief Javier Solana discussed the situation by telephone with Saakashvili.
"Solana expressed his serious concern about the situation in South Ossetia and called for every effort to be made to rapidly end the violence and resume peaceful talks between the sides," an EU statement said.
An attempt at direct talks on Thursday never got off the ground. The two sides are at loggerheads over the format of negotiations, with Tbilisi pushing for direct talks with greater involvement by the West.
A security source said Georgian special police units and a mechanised army brigade had moved to Gori town on the doorstep of South Ossetia. A field hospital was set up on the main road and buses filled with Georgian soldiers stood in convoy.
Fitch's head of emerging European sovereigns, Edward Parker, told Reuters prolonged warfare could prompt the ratings agency to downgrade Georgia from its current BB-rating with stable outlook and have an impact on foreign investment.
The fighting began at the weekend, when six people were killed. On Thursday, the official separatist website www.cominf.org said Georgians were shelling the village of Khetagurovo from Avnevi.