IDADI YA WATU WALIOSOMA HABARI HII:

Jubilant residents in the Abkhaz capital Sukhumi fired shots into the air, uncorked champagne bottles and wept after the news from Moscow.

"We feel happy. We all have tears in our eyes. We feel pride for our people," said Aida Gabaz, a 38-year-old lawyer.

Hundreds of people gathered in the main square of the South Ossetian capital Tskhinvali, hugging each other and waving the separatist flag. There was a deafening roar of celebratory gunfire from Kalashnikov guns and antique hunting rifles.

Georgia's Deputy Foreign Minister Giga Bokeria described Moscow's recognition of South Ossetia and Abkhazia as an "unconcealed annexation" of Georgian territory.

Speaking in an interview with the Kremlin-controlled Russia Today television channel, Medvedev said he was not frightened by the prospect of a new Cold War.

"Nothing scares us, including the prospect of a Cold War, but we don't want it," Medvedev said. "In this situation, everything depends on the position of our partners."

The Kremlin instructed the Foreign Ministry to establish diplomatic ties with the two regions and ordered the Defence Ministry to guarantee peace there.

United Nations sanctions against Russia are out of the question as Russia has a veto in the Security Council. Major powers are also wary of any action that might make Russia withdraw its support against Iran over its nuclear program and transit support for NATO forces in Afghanistan.

Retaliation could involve Russian membership of the big international clubs: excluding Moscow from the Group of Eight (G8) top industrial democracies or blocking its bid to join the World Trade Organization (WTO).