Ukraine’s acting president, Oleksandr Turchynov, admitted on Wednesday that his government had lost control of two regions with a combined population of 6.6 million, more than 14 percent of the country’s total. Even without a direct invasion, Russian President Vladimir Putin has managed to plunge the country into ungovernable chaos, using local elites and law enforcers in Ukraine’s southeast to throw the interim government in Kiev off balance.

This all raises a troubling question: Can Putin undo the damage he has wrought?

“I want to say honestly: Today law enforcement agencies are unable to get the situation in the Donetsk and Lugansk regions under control,” Turchynov told reporters.

The statement came after more than three weeks of futile attempts by the Kiev government to wrest away government buildings from armed people who had put up Russian flags and declared the regions independent from Ukraine. Aided by Russia’s threats of direct interference, the rebels succeeded in expanding their control: On Tuesday, they seized key buildings in Lugansk, where they had held only the local office of the Ukrainian counterintelligence service.

Military and police operations directed from Kiev ended in the disgraceful surrender of Ukrainian troops and the open disobedience of local police, who often joined forces with the pro-Russian militias. The local cops and volunteers apparently hoped Russia would back them up with a full-scale invasion, and now they are all-in: They cannot retreat for fear of retribution.

The involvement of Russian coordinators is completely deniable, as far as Moscow is concerned. The “armed forces” of the self-declared Donetsk Republic are commanded by one Igor Girkin, also known as Strelkov, a military role-playing enthusiast from Moscow whom Ukrainian intelligence identifies as a colonel in Russian military intelligence.

Girkin himself said on his resume in 2010 that he served in an anti-terrorist unit of the FSB, the Russian counterintelligence service. His Wikipedia entry says he retired last year. Girkin took part in the invasion of Crimea, where heavily armed but unmarked Russian troops backed up local pro-Russian volunteers. Reporters saw him there, apparently playing an important command role but not wearing any insignia.

If Girkin is caught, Moscow can easily say he’s just a retired soldier taking his role-playing hobby a little too seriously. If he is recalled, or decides to leave, the local volunteers armed with weapons stolen from police stations, and the cops who surrendered these stations and refused to follow orders from Kiev, will still be there. The now-defunct Geneva agreement among Ukraine, Russia, the European Union and the U.S. promises them amnesty unless they were involved in capital crimes. Still, they fear that the Kiev government will exact revenge at the first opportunity, given the criminal cases already outstanding against some of the cops seen as soft on rebels.

Igor Tupikin used to run a small advertising agency in Kharkov, an eastern Ukrainian regional center still mostly under Kiev control. Then Gennady Kernes, a man with a rich criminal past, became mayor of Kharkov in 2010. Thugs loyal to Kernes destroyed Tupikin’s clientele by raiding businesses, demanding protection payments and forcing out owners.

On Monday, Kernes was shot in the back during his morning bike ride. He is now recovering from an operation in Israel and will apparently survive.

Tupikin, who has hated Kernes for years, now wants him to get well as fast as possible. If he dies, the cops and counterintelligence people “will just start following orders from Russia,” Tupikin told me, “they already have contacts there.”

Tupikin’s concern is well placed. Turchynov believes Kharkov is one of six more regions of Ukraine under threat from separatists, who have little to lose: Even abandoned by Russia, they may find it a better option to fight on than to surrender, in part because Kiev is so feeble militarily and so scared of provoking Russia.

If Moscow has little more control over events than Kiev does, stepping up pressure on Putin will only make the mess worse. He can neither resolve the crisis nor admit his powerlessness to end what he started. Kiev needs to find a way to negotiate with the local elite and law enforcers, providing convincing guarantees of safety. That would mean talking to underworld bosses, crooked cops and Ukraine’s richest man, Rinat Akhmetov, who knows a lot of the important players and has lots of money to buy peace.

He reminded the world today that he is still there, waiting to be called on. “I am not selling my business and not planning to leave the country,” he said in a statement on his holding company’s website. “My stance is unchanged: Our country should be united and I will do everything in my power for Donbas and Ukraine to be together.”

With less than a month to go before elections in Ukraine, time for a compromise is running out. The alternatives are worse: a Russian invasion, which is still a remote possibility, or a festering, lawless hot spot on the borders of both Russia and the EU.

Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter: @Bershidsky.

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