Rebels claim to encircle Ukraine troops in Debaltseve
The rebels have been trying to seal off the strategic town of Debaltseve
Pro-Russian rebels in Ukraine say they have encircled the town of Debaltseve - but Ukraine says its troops are still fighting along a supply road.
Russia had violated "every commitment" in a truce deal, he said, after meeting German Chancellor Angela Merkel.
Mr Obama is under pressure from senior US officials to supply arms to Ukraine.
However, Ms Merkel objects to this. Ms Merkel and Mr Obama have been holding talks on a new peace deal for the conflict in Ukraine's east.
Russia has denied accusations of sending troops and supplies to re-enforce the rebels battling Ukrainian forces.
'Demilitarised zone' The rebels said on Monday that they had cut off a key supply road to Debaltseve, a strategic railway junction, which is near the rebel-held city of Donetsk. However, Ukraine's military told the BBC that the battle was continuing.
Mrs Merkel's US trip is the latest in a flurry of diplomatic activity to try end nearly a year of conflict in Ukraine
Thousands of Ukrainian troops are believed to be in Debaltseve and the nearby area. Heavy fighting has been raging there for more than a week, with the rebels gaining some ground.
Ukrainian government officials say nine soldiers and at least seven civilians have been killed in fighting over the last 24 hours.
The crisis in Ukraine has already claimed more than 5,300 lives and displaced 1.5 million people from their homes.
The detailed proposals have not been released but the plan is thought to include a demilitarised zone of 50-70km (30-45 miles) around the current front line.
Four-way talks between Russia, Ukraine, Germany and France are due to be held in Belarus's capital Minsk on Wednesday to discuss the proposals.
'One option' Speaking alongside the German chancellor, President Obama said the option of lethal defensive weapons for the Ukrainian government remained on the table.
"If, in fact, diplomacy fails, what I've asked my team to do is to look at all options," he said, adding that offering lethal arms was only one of the options under consideration.
Mrs Merkel, who has made it clear she opposes sending lethal arms, acknowledged setbacks in efforts to reach a diplomatic solution with Russia over Ukraine, but said that they would continue.
Much of the recent fighting has taken place around Debaltseve - a key piece of territory in the eastBut this Russian aggression had reinforced the unity of the US and its European allies, he added.
EU foreign ministers in Brussels agreed on Monday to impose further sanctions against Russian and rebel officials, but have put them on hold for a week to give the peace efforts a chance.
Russian President Vladimir Putin, who is also considering the peace proposals, earlier blamed the West for causing the crisis, saying they had broken pledges not to expand Nato and forced countries to choose between them or Russia.
In comments to an Egyptian newspaper, Mr Putin accused Western states of supporting a "coup d'etat in Kiev" - a reference to the ousting of former Ukrainian President Viktor Yanukovych last year.
Many civilians have fled the Donetsk fighting - A ceasefire signed by Ukraine and pro-Russian separatist rebels on 5 September 2014 in Minsk, Belarus
- They agreed to 12 points including pulling back heavy guns by at least 15km (9 miles), releasing prisoners, allowing access to international observers, and setting up a buffer zone on the Russia-Ukraine border. Foreign mercenaries were to withdraw and Donetsk and Luhansk would get wider self-rule
- But military clashes never entirely stopped. Each side accused the other of violating the deal and violence later flared the length of the ceasefire line
- Rebels also held their own local elections in November 2014, in defiance of Kiev. The government responded by saying it would scrap partial autonomy for Donetsk and Luhansk

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