Ukraine's two rivals for power failed in nearly three hours of talks Friday to resolve the political stalemate over who will lead the bitterly divided nation, and opposition candidate Viktor Yushchenko (search) told a huge rally that he was insisting on a new election.

Outgoing President Leonid Kuchma (search) presided at the meeting with Yushchenko, Prime Minister Viktor Yanukovich (search) and a delegation of key European envoys, and he said a working group had been established to find a solution to the crisis over who will succeed him.

The Kremlin-backed Yanukovych was declared the winner of Sunday's election but cannot be inaugurated pending hearing of an appeal to the Supreme Court filed by the Yushchenko camp.

President Bush said from his vacation home in Crawford, Texas, that the world "is watching very closely" and he hoped the crisis would be "resolved in a way that brings credit and confidence to the Ukrainian government." The United States and European Union have said they cannot accept the results of the runoff election, warning of "consequences" of Ukraine's relations with the West if the current outcome stands.

Hundreds of thousands of Yushchenko's supporters have massed in the streets since Sunday to protest what they and Western nations have called seriously flawed balloting.

Yushchenko did not give details of what was discussed in the talks at the ornate Mariinsky presidential palace, but he told tens of thousands of his supporters in Independence Square shortly afterward that his side was insisting on a rerun of the voting, which he said he wanted to be held Dec. 12 under the observation of the Organization for Security and Cooperation in Europe (search).

Yushchenko did not specify in his statement to the crowd, but he appeared to be calling for a new nationwide vote, rather than only in some areas. In recent days, speculation had been high that a new vote in only some districts could be acceptable — primarily districts in Yanukovych stronghold regions where observers said turnout figures appeared to be wildly inflated.

Earlier Friday, the Unian news agency quoted Russian Foreign Ministry spokesman Alexander Yakovenko as saying that Moscow regarded potential revoting favorably — an apparent significant retreat from its earlier insistence that the elections were fair and valid.

Russian President Vladimir Putin had all but publicly endorsed Yanukovych, and underlined his support by visiting Ukraine on the eve of both the initial vote and Sunday's runoff. He has twice congratulated Yanukovych on his victory but on Thursday said the election dispute should be settled in the courts, not in the streets.

Kuchma said all sides "stand against any use of force that would lead to bloodshed" and said the working group would begin its consultations immediately.

The Supreme Court appeal is to be heard Monday, and the protests are expected to continue for several days. The size of the crowds could rise as the weekend frees many people from their jobs, but some protesters seemed disappointed with the results of Friday's talks and that could slow down the demonstrations' momentum.

The meeting included European Union foreign policy chief Javier Solana, Polish President Aleksander Kwasniewski, Lithuanian President Valdas Adamkus and Boris Gryzlov, speaker of Russia's lower house of parliament. Jan Kubis, the head of the OSCE, and Volodymyr Lytvyn, speaker of the Ukrainian parliament, also participated.

The Western-leaning Yushchenko had previously said he would only negotiate with Kuchma, and he said the main condition for holding talks would be the president's acknowledgment that the election was invalid.

Before he brought both sides together, Kuchma called for an end to the mass demonstrations.

"Any revolution must end in peace," Kuchma said in a televised statement. "The sooner this so-called revolution ends, the better it will be for the Ukrainian people."

The nation of 48 million has been seized by an ever-escalating political crisis since last weekend's vote. Throngs of Yushchenko supporters, wearing scarves, shirts, hats and ribbons in his campaign's orange colors, have set up a sprawling tent camp along a main avenue and the central Independence Square in Kiev, braving snow and freezing temperatures for six straight nights.

Yanukovych, meanwhile, rallied some 2,000 supporters waving his blue-and-white campaign flags in front of Kiev's train station.

"I don't need power at the cost of spilled blood," Yanukovych said in remarks broadcast on the pro-Yanukovych TRK Ukraine television.

In Chernihiv, about 80 miles north of Kiev, police fired smoke grenades over the heads of a pro-Yushchenko crowd after someone threw an "explosive packet" at a police cordon outside the mayor's office, police spokeswoman Raisa Deikun said. Two policemen were hospitalized, she said.

It was not immediately clear what the explosive packet was. Deikun said the protesters had been trying to seize the mayor's office.

In Kiev, protesters standing five deep and linking arms blockaded the Cabinet of Ministers building where Yanukovych works, and refused to let staff enter.

Protesters also blocked surrounding streets with buses and vans decorated with Yushchenko's orange flags, posters and ribbons. Apart from a few traffic policemen wearing orange armbands, there were no police in the immediate area. However, special forces were massed nearby.

Protesters also surrounded the presidential administration building, which was heavily guarded by police in riot gear.

Ukraine's Supreme Court has ordered the election's final results not be published pending an appeal filed by Yushchenko's camp.

Although Yanukovych enjoys Kuchma's backing, the Supreme Court is respected as an unbiased body that hasn't hesitated to rule against the government, said Igor Zdanov, a political analyst with the Kiev-based Razumkov think tank.

In Moscow, Russian Foreign Minister Sergey Lavrov said the Kremlin was concerned by the West's attempts to influence events in Ukraine, "especially when some European capitals say that they don't accept the elections and their next thesis is that Ukraine must be with the West"

"The Ukrainian people must decide who Ukraine wants to be with, and such statements make you think that somebody really wants to draw new dividing lines in Europe," Lavrov said.

Moscow considers Ukraine part of its sphere of influence and a buffer between Russia and NATO's eastern flank. The United States and the European Union have said they cannot accept the results and warned Ukraine of "consequences" in relations with the West.

On Friday, Moldova said it does not recognize the results of the election in Ukraine, putting the former Soviet republic at odds with Putin.

The crisis has threatened to further divide Ukraine. Yanukovych drew his support from the pro-Russian, heavily industrialized eastern half of Ukraine, while Yushchenko's strength was in the west, a traditional center of nationalism.