Ukraine and pro-Russian rebels reached a ceasefire agreement on Friday, the first step toward ending fighting in eastern Ukraine that has caused the worst standoff between Moscow and the West since the Cold War ended.

The ceasefire deal was struck in the Belarussian capital Minsk along with a deal allowing for prisoner exchanges, deliveries of humanitarian aid and the withdrawal of heavy weapons after five months of a conflict that has killed more than 2,600 people.

Despite some initial shelling in the rebel stronghold of Donetsk after the truce began at 6 p.m. (1100 ET), the ceasefire appeared to be holding. But many residents and combatants were skeptical that the ceasefire could last long or provide the basis for a durable peace settlement. The two sides remain far apart on the future of the region.

Despite the deal, European Union ambassadors agreed to stronger sanctions against Russia over its involvement in the war in Ukraine, with the measures set to be implemented on Monday, diplomats said in Brussels.

The diplomats said the EU sanctions - the latest economic measures aimed at Moscow over Ukraine - could be suspended if the truce holds and Russia withdraws its troops from Ukraine.

"Human life is the highest value. We must do everything possible and impossible to end the bloodshed and put an end to people's suffering," Ukrainian President Petro Poroshenko said in a statement announcing the truce, reached with representatives of Russia and the OSCE security watchdog.

The Kremlin welcomed the agreement, based largely on proposals made by President Vladimir Putin and leaving the pro-Russian separatists in control of vast swaths of territory.

Putin's press secretary, Dmitry Peskov, urged the sides to build on the deal and seek a permanent political settlement, although many problems remain and an earlier June ceasefire lasted only 10 days.

At a NATO summit in Wales, US President Barack Obama, who accuses Russia of arming the rebels and sending in troops to back them, reacted with skepticism to the deal.

"With respect to the ceasefire agreement, obviously we are hopeful but based on past experience also skeptical that in fact the separatists will follow through and the Russians will stop violating Ukraine's sovereignty and territorial integrity. So it has to be tested," Obama told a news conference.

"We also sent a strong message to Russia that actions have consequences. Today the US and Europe are finalizing measures to deepen and broaden our sanctions across Russia's financial, energy and defence sectors," Obama added.

The agreement among the European Union countries expanded the package of sanctions against Russia to measures related to access to capital markets, defense, dual-use goods and sensitive technology, an EU diplomat said.

The EU also expanded the list of people under an asset freeze to include the new leadership in Ukraine's Donbass region, Crimea's government and Russian decision-makers and oligarchs.

Also attending the Nato summit, Poroshenko told reporters Ukraine was ready to grant a significant decentralization of power and economic freedom to the regions as well as the right to use the language of their choice and an amnesty.-Reuters