Amid diplomatic efforts to resolve the worsening crisis in eastern Ukraine, pro-Russian rebels claimed Monday that they had encircled Ukrainian troops in the city of Debaltseve, a major transport hub only 45 miles from Donetsk.

The separatists said that they had cut off an important supply road to Debaltseve, which is considered to be a key rail and road junction northeast of the city of Donetsk. However, the Ukrainian military claimed its troops were still fighting with the rebels along the supply road, BBC reported, citing Kiev military spokesperson Olexandr Matuzyanyk.

Thousands of Kiev troops are believed to be in Debaltseve, which has turned into the latest focal point in the ongoing conflict. While gaining control of Debaltseve is expected to give rebels access to important routes within the self-proclaimed republics of Luhansk and Donetsk, the city is also considered to be significantly strategic for the Ukrainian army after it lost Donetsk airport to heavily armed rebels last month.

According to Ukrainian government officials, nine soldiers and at least seven civilians have been killed in fighting in Debaltseve in the last 24 hours, BBC reported.

On Monday, rebels from Donetsk People’s Republic also claimed they have taken control of the village of Logvinovo, a strategic gain bordering a highway that was “used earlier for supplying the Ukrainian military with ammunition and military hardware.”

Meanwhile, German Chancellor Angela Merkel met U.S. President Barack Obama to inform him about Franco-German efforts to end the conflict and revive the Minsk ceasefire agreement, which was signed in the Belarusian capital in September last year.

Obama said Monday that the U.S. government is still considering providing lethal aid to the Ukrainian military, while diplomacy and sanctions on Russia remain the preferred measures to resolve the crisis. “It is true that if, in fact, diplomacy fails, what I've asked my team to do is to look at all options,” Reuters quoted Obama as saying. “But I have not made a decision about that yet.”

Merkel, however, opposed the idea of sending weapons to Kiev. “It has always proved to be right to try again and again to sort such a conflict,” The Associated Press quoted Merkel as saying. “I hope that we shall be able to solve this conflict by diplomatic means because I think by military means it cannot be solved.”