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(CNN) -- Russia needs to keep actively guarding its sovereignty to avoid becoming like a chained bear whose captors "will pull out his teeth and claws," President Vladimir Putin said Thursday.

Responding to a question at his annual news conference about Russia's annexation of Crimea, Putin drew an analogy with what would happen if "our most recognizable symbol ... the bear who guards his Taiga (forest)" stopped chasing pigs and sat still, "maybe eating berries and honey."

The President pondered whether the bear would then be left alone before answering: "They won't leave him alone. They are always trying to put him on a chain. They will always try to put him on a chain and as soon as he is put on this chain, they will pull out his teeth and claws. In today's terms we are speaking about our nuclear deterrence. As soon as, God forbid, this is done, the bear isn't needed anymore."

Once the bear had lost his teeth it might then be stuffed, he concluded.

Putin told reporters gathered in Moscow that his country was ready to mediate in the Ukraine crisis, and he denied that Russians killed in Ukraine were members of his country's military.

Western powers accuse Russia of sending troops and equipment to help separatists in eastern Ukraine in their fight against Ukrainian government forces.

In April, violence broke out in two Ukrainian regions that border Russia -- Donetsk and Luhansk -- as separatist leaders declared independence from the government in Kiev. Moscow has voiced moral support for the rebels and sent aid convoys into the region, but it has repeatedly denied military involvement.

In his end-of-year news conference, Putin said there had been "a state coup and a military coup" in Ukraine with which parts of that country had not agreed.

He repeated the long-standing Russian line that any Russians killed in Ukraine were volunteers.

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Russia's Vladimir Putin: 'We're not warmongers' - CNN.com

Ukraine is now strong enough to seize the initiative to create a lasting cease-fire in its Donbas Rust Belt, currently occupied by Russia and its proxies. And Russia may be weak enough to be receptive. It is in Kiev's interest to do so. A state of permanent war with Russia would damage Ukraine's democracy, economy and security.

Almost imperceptibly, the tide seems to have turned in Ukraine's favor. The Ukrainian army has been able to withstand daily attacks by Russian troops. Ukraine's October parliamentary elections produced a pro-Western majority, and its technocratic government appears poised for radical reforms.

By contrast, the Russian economy is in deep trouble from plummeting oil prices and the bite of sanctions. Many Russians have died fighting in the Donbas enclave. And Russian President Vladimir Putin is increasingly isolated internationally.

Western pundits debate whether Russia's troubles make it more amenable to a political settlement in Ukraine or more aggressive. This question won't be resolved in argument. Russian intentions need to be put to the test.

Ukraine can devise such a test in a way that enables it to retain the political high ground while strengthening its security and prospects for economic reform. But first, Kiev must accept some uncomfortable realities.

Neither Crimea nor the two separatist pro-Russia republics in the Donbas area will return to Ukraine's fold anytime soon, if ever. Ukraine lacks the military and financial resources to retake them, and any move to do so would not get Western backing and could even erode American and European support for Ukraine.

Kiev should therefore act as if these breakaway eastern regions are no longer part of Ukraine. It's starting to do just that, as seen in its recent decision to end subsidies, pensions, veterans' benefits and postal and banking services to the Donbas statelets.

However, Kiev should not recognize these regions as belonging to Russia. That would be political suicide for a nascent government facing multiple challenges and it would be a needless gift to Moscow. Nor should Kiev say anything definitive about the territories' final status. Instead, Ukraine should keep its future options open while ceding responsibility for their economic upkeep to Russia.

Disengaging itself from Crimea and the Donbas enclave benefits Ukraine. These regions have been anti-reform, anti-Western, pro-Russia bastions since Ukraine's independence. Their detachment makes radical reform in Ukraine possible and deprives Russia of an important means for meddling in Ukrainian politics. So what looks like a loss is in fact a gain.

Moreover, industrial production in the Donbas enclave has fallen 80%, and coal mines, factories and infrastructure have been severely damaged. Kiev would be wise to let Russia bear the burden of repairing the region's economy.

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Ukraine should put Russia to the test

STORY HIGHLIGHTS

(CNN) -- More than 1.7 million children in conflict-torn areas of eastern Ukraine face an "extremely serious" situation, the U.N. children's agency has warned, with their suffering exacerbated by harsh winter weather.

Many families have been forced from their homes and lack access to safe water, sanitation and schooling.

"Children continue to bear the brunt of this conflict, with schooling disrupted and access to basic services limited," said Marie-Pierre Poirier, Unicef regional director for Central and Eastern Europe and Central Asia.

She called for extra resources to be provided to those in need.

"Extremely harsh winter conditions have made the impact of the crisis more acute," she said.

Government forces and pro-Russia rebels have been battling for control of eastern Donetsk and Luhansk regions since April, after Russia annexed Ukraine's southeastern Crimea region the previous month.

According to a Unicef press release Friday, 147 schools have been closed in parts of the Donetsk region where fighting is ongoing, disrupting the education of about 50,000 children since September 1. While some schools are in ruins, others are closed because of safety concerns.

In government-controlled areas, 187 educational institutions in total have been damaged or destroyed, Unicef said.

The closures mean that besides lessons, children are missing out on the stability and routine that can be provided by school at a time of crisis, helping to alleviate their stress, the agency said.

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Ukraine crisis

STORY HIGHLIGHTS

(CNN) -- More than 1.7 million children in conflict-torn areas of eastern Ukraine face an "extremely serious" situation, the U.N. children's agency has warned, with their suffering exacerbated by harsh winter weather.

Many families have been forced from their homes and lack access to safe water, sanitation and schooling.

"Children continue to bear the brunt of this conflict, with schooling disrupted and access to basic services limited," said Marie-Pierre Poirier, Unicef regional director for Central and Eastern Europe and Central Asia.

She called for extra resources to be provided to those in need.

"Extremely harsh winter conditions have made the impact of the crisis more acute," she said.

Government forces and pro-Russia rebels have been battling for control of eastern Donetsk and Luhansk regions since April, after Russia annexed Ukraine's southeastern Crimea region the previous month.

According to a Unicef press release Friday, 147 schools have been closed in parts of the Donetsk region where fighting is ongoing, disrupting the education of about 50,000 children since September 1. While some schools are in ruins, others are closed because of safety concerns.

In government-controlled areas, 187 educational institutions in total have been damaged or destroyed, Unicef said.

The closures mean that besides lessons, children are missing out on the stability and routine that can be provided by school at a time of crisis, helping to alleviate their stress, the agency said.

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War, cold take toll on Ukraine children

Ukraines president, speaking a day after the nations junk credit rating was cut further, said next years budget mustnt cut corners on military spending and should account for the possibility of an invasion.

Addressing Ukraines National Security Council, Petro Poroshenko urged expenditure on the army of 5 percent of gross domestic product in 2015. The government should target NATO guidelines on military spending and seek to meet the alliances entry criteria, he said in Kiev, the capital.

The war made us stronger, but has crushed the economy, Poroshenko said. Theres one article of spending that we wont save on and thats security. Our financial plan should cover force majeure. Our enemy can start a full-scale offensive any minute.

Ukraine is finalizing next years fiscal plan amid a new cease-fire in the conflict thats ravaged its industrial heartland near Russias border. As its economy shrinks and reserves languish at a more than 10-year low, its also racing to secure more international aid to top up a $17 billion rescue. Standard & Poors said yesterday that a default may become inevitable, downgrading Ukraines credit score one step to CCC-.

With official forecasts putting this years contraction at 7 percent, the government needs $15 billion on top of its bailout to stay afloat, according to the European Union. To unlock the next tranche of the International Monetary Fund-led package, it plans to approve a 2015 budget by Dec. 23. An IMF mission, which visited Kiev Dec. 9-18, will return early next year.

The delay in IMF disbursements in 2014, coupled with significantly reduced foreign currency official reserves, increases the risk that the Ukrainian government might not be able to meet its obligations, S&P said in a statement.

The European Union and the U.S. are discussing $12 billion to $15 billion in aid to Ukraine and there needs to be a Russian contribution to the package, Pierre Moscovici, the 28-nation blocs economy commissioner, said at a Bloomberg Government event this week in Washington. A decision is needed in January, he said yesterday.

Poroshenko spoke by phone with IMF head Christine Lagarde, according to a statement early this morning on the presidents website that didnt give further details. The hryvnia, this years worst performer against the dollar with a 48 percent plunge, was little changed at 15.8193 a dollar yesterday evening in Kiev, data compiled by Bloomberg showed.

In eastern Ukraine, another 24 hours passed without fatalities among Ukrainian troops as they square of against their pro-Russian adversaries, according to defense spokesman Volodymyr Polevyi. While the truce has stemmed deaths, which exceed 4,600 since the conflict began, according to the United Nations, no date has been set for a new round of peace talks in the Belarusian capital of Minsk, he told reporters in Kiev.

The self-proclaimed Donetsk Peoples Republic, one of two breakaway regions in eastern Ukraine, wants to join Russia, its foreign minister, Aleksandr Kofman, said in a website statement.

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Poroshenko Says Ukraine Cant Scrimp on Army as S&P Cuts Rating