Amid continued defiance, Ukrainian official vows: 'We are not stopping'

Slavyansk, Ukraine (CNN) -- On the one side, Ukraine's interior minister said Saturday that military operations in the east would continue and vowed, 'We are not stopping.'

On the other, there was the pro-Russian separatist leader in Luhansk who announced the formation of an army to march on Kiev.

These and other statements suggest Ukraine's future will feature yet more unrest, more fighting and more likelihood that it will spawn a full-scale civil war and, perhaps, an international one.

Saturday actually featured a rare bright spot in the volatility: the release of seven international observers and five Ukrainians from the defense ministry who'd been seized together.

Pro-Russian activists beat a pro-Ukraine supporter trying to save the Ukrainian flag removed from a flagpole outside the burned trade union building in the southern Ukrainian city of Odessa on Saturday, May 3. More than 30 people were killed in a building fire in Odessa on May 2.Photos: Crisis in Ukraine Pro-Russian militants gain ground Separatists seize buildings in Ukraine

Prime Minister Arseniy Yatsenyuk said this development 'should signal to everyone that we need peace and reconciliation.'

He added: 'This is the only way ... to save Ukraine and ... make it a flourishing European state.

Yet there appears little indication that anything has changed overall in Ukraine -- particularly in its east and, increasingly, its south -- to change the perception that the nation is in crisis.

Interior Minister Arsen Avakov said the 'active phase' of an operation involving 'special units ... instructed to stop the provocation' was in its second day Saturday and centered in Kramatorsk, where people were urged to stay indoors.

A CNN team on the outskirts of the city, which is some 16 kilometers (10 miles) south of Slavyansk, saw troop carriers moving toward the city center. Amateur video posted online -- which CNN could not confirm the authenticity of -- showed burnt out buses, plumes of smoke and residents calmly observing it all.

Russia continued to condemn this and other actions by the Kiev-based government targeting those aligned with Moscow.

In a phone call Saturday with U.S. Secretary of State John Kerry, Foreign Minister Sergey Lavrov said, '(The) punitive operation in the southeastern Ukraine plunges the country into fratricidal conflict.'

This unrest raises the prospect of Russia becoming even more involved, whether that involves taking over all or parts of the region peacefully as it did with Crimea or as part of a full-scale military conflict.

Dmitry Peskov, Russian President Vladimir Putin's spokesman, told CNN that his nation's government had received thousands of calls in the past 24 hours from people in southeastern Ukraine. The callers described the situation as 'horrendous' and pleaded for Russia's involvement.

'Most of the people literally demand active help from Russia,' Peskov said.

Separatist leader: We won't wait 'until we are encircled and burned'

If Moscow does get involved militarily, they won't have to go far: NATO has estimated up to 40,000 Russian troops are now near the border with Ukraine, a fact that has made not just Ukraine but other neighboring nations wary of invasion.

Ukraine's military has stepped up its own activity, including the launch Friday of its biggest push yet to reassert control over parts of the nation's east.

Earlier this week, acting Ukrainian President Oleksandr Turchynov acknowledged that the central government has effectively lost control of the country's Donetsk and Luhansk regions to the pro-Russian separatists.

The violence has spilled over into cities like Odessa, on the Black Sea. Saturday there was calm relative to the previous day -- when 46 people died in a blaze and clashes, a spokesperson for the local prosecutor's office told CNN -- with the frustration palpable on the city streets.

Ukraine hoping for return of stolen funds Ukraine's secret government luxuries Obama, Merkel discuss sectoral sanctions

It's in Luhansk where separatist leader Valeriy Bolotov on Saturday declared a state of emergency and announced the formation of a 'South-East' army for the entire region.

In a video statement aired on local stations, Bolotov also introduced a curfew, a ban on political parties, and his expectation that local law enforcement officials will take an oath of allegiance to the people of Luhansk.

'In case of not following this, you will be announced traitors of people of Luhansk and wartime measures will be taken against you,' he announced in the video statement.

Bolotov stated that the new armed forces wouldn't just protect the region, it would try to move forward to take Ukraine's capital.

'We are not going to sit and wait until we are encircled and burned,' he said.

Ex-hostage: Detained because mission 'wasn't coordinated' with locals

Saturday's release of the Organisation for Security and Cooperation in Europe observers -- who are from Germany, Denmark, Poland and the Czech Republic -- resolved a major diplomatic issue for the West.

The self-declared mayor of Slavyansk, Vyacheslav Ponomarev, confirmed the release, crediting Russian envoy Vladimir Lukin with helping make it happen. Ponomarev told CNN there had been no prisoner exchange.

One of the hostages freed, Col. Turatsky Igor Dmytrovych of Ukraine's armed forces, said that no one was injured and everyone got 'food, drink and sleep.' He also shed light on their captors' thinking, including their questions of 'why did we come to that region, what was our goal, and which tasks we had to accomplish.'

'We were told that our delegation was detained as our mission wasn't coordinated with local population representatives that have their own opinion on the course of events,' Dmytrovych said after arriving in Kiev on Saturday.

This sense of who controls what -- or, at least, who should control what -- is at the core of the tensions in Ukraine.

Separatists, many of them of Russian descent, believe that the government in Kiev is illegitimate since it formed after what they call the illegal ousting of President Viktor Yanukovych in February. They have demanded that no one in Kiev should control their territory, saying that power and responsibility should rest with them or their Russian ally.

Officials in Kiev have the opposite view. They accuse Moscow of meddling, in its support of separatists and more, trying to break up Ukraine and, perhaps, take over parts or all of it. The government explains their military and security actions in the east and south are aimed at a common goal: to keep their Eastern European nation whole and united.

Why NATO is such a thorn in Russia's sideOpinion: Putin's empire building is not a new Cold WarAmanpour blog: $17 billion Ukraine bailout approved

CNN's Nick Paton Walsh reported from Slavyansk while Greg Botelho wrote from Atlanta. CNN's Arwa Damon in Donetsk, Claudia Rebaza in Kiev, and Matthew Chance and Alla Eshchenko in Moscow contributed to this report. CNN's Marie-Louise Gumuchian, Chandrika Narayan, Chelsea J. Carter, Laura Smith-Spark. Andrew Carey, Khushbu Shah, Ralph Ellis, Elise Labott, Richard Roth, Boriana Milanova and Yon Pomrenze also contributed.