FP’s Situation Report: Fighting continues in Ukraine ahead of peace talks; Islamic State’s last known American hostage is dead; U.S. rethinks withdrawal plans in Afghanistan; and much more from around the world.

By David Francis with Sabine Muscat

Fresh violence in Ukraine lessens hopes for peace. There were signs late Tuesday of a nearing agreement to end the conflict between Ukraine and pro-Russian separatists. And Russian President Vladimir Putin confirmed his attendance at the peace talks in Minsk at the last minute. But new fighting overnight has further dampened hopes for a deal. The Wall Street Journal’s Gregory L. White and Andrey Ostroukh: “On Wednesday morning, a Ukrainian defense official said 19 troops had been killed and 78 wounded outside Debaltseve, a Kiev-held enclave that has been the site of some of the heaviest fighting in recent days.”

Kayla Mueller, the 26-year-old American hostage held by the Islamic State, is dead. Her family confirmed her passing Tuesday. Experts dispute the terror group’s claim it was caused by Jordanian airstrikes, FP’s Elias Groll reports. Meanwhile, Groll also reports the White House is squelching rumors that U.S. and Syrian forces are teaming up against the Islamic State in Syria.

U.S. rethinks plans to withdraw from Afghanistan. The deteriorating security situation in Kabul means Gen. John F. Campbell, commander of U.S. and NATO forces, could be given greater flexibility on where troops are stationed and how quickly they’ll leave. The Washington Post’s Missy Ryan: “The options under discussion would not alter what is perhaps the most important date in President Obama’s plan: ending the U.S. military mission entirely by the time he steps down in early 2017.”

PRESS PACK: Peace talks in Ukraine

The New York Times’ David M. Herszenhorn: “The conflicting reports on the status of the talks in Minsk underscored the tension surrounding the latest negotiations, with the European leaders pressing for a peaceful resolution to the crisis even as Mr. Obama said he was actively considering whether to send arms to Ukraine.”

The Telegraph’s Roland Oliphant: “Ukrainian government forces launched a surprise offensive near the strategic seaport of Mariupol on Tuesday morning, in an apparent bid to seize ground ahead of crunch peace talks in Minsk tomorrow.”

The Washington Post’s Katie Zezima on President Obama’s phone call with President Putin: “The White House said Wednesday that Obama … warned that if Russia ‘continues its aggressive actions in Ukraine, including by sending troops, weapons, and financing to support the separatists, the costs for Russia will rise.’”

The Guardian’s Frances Perraudin: “The British foreign secretary, Philip Hammond, has defended the government against accusations that it has taken a back seat in negotiations with Russia to find a solution to the crisis in Ukraine.”

ONLY IT SITREP: Berlin Clings to Hope for Ukraine Deal

FP’s Sabine Muscat: The ceasefire Russia and Ukraine agreed upon last September in Minsk was not worth the paper it was written on. But German Chancellor Angela Merkel and French President Francois Hollande have now dragged both sides back to the capital of Belarus — hoping that the second time’s the charm.

As Washington’s patience with Putin runs out, politicians in Berlin still hold out hope. Talking to Foreign Policy, Norbert Röttgen, the chairman of the Bundestag’s Foreign Affairs Committee and a member of Merkel’s CDU, said that Putin’s situation is different from last fall: “The economic costs caused by sanctions, a low oil price, a falling ruble, and the flight of capital are enormous. He knows that he is driving up a dead end.”

Röttgen sees only one problem: “He may think that he hasn’t reached the dead end yet. That’s why he might try to keep playing for time.”

Should today’s efforts fail, the West would have to revisit its policy, Röttgen admitted. New sanctions are already on the table in Brussels. But arming Ukraine against Russia, as the U.S. is considering, would be a grave mistake, said Röttgen, echoing German Chancellor Angela Merkel.

Not only would it give Putin a pretext to expand the war beyond eastern Ukraine, it would also serve his other goal “to divide the West wherever he can.”

Welcome to Wednesday’s edition of the Situation Report, where we’re wishing John Stewart well after 16 years on the Daily Show.

Connect with me at david.francis@foreignpolicy.com and @davidcfrancis and spread the word about SitRep — your destination for global security news and Washington whatnot. Like what you see? Tell a friend. Tell your colleagues. Don’t like what you see? Tell me. Or holler with tips, reports, or anything else the world needs to know, and I’ll try to include it.

WHO’S WHERE WHEN TODAY

10:00 a.m. The House Committee on Homeland Security holds a hearing on “Countering Violent Islamist Extremism.” 1:20 p.m. President Obama speaks on progress in the fight against Ebola at the White House. 5:25 p.m. Obama meets with Secretary of Defense Chuck Hagel.

WHAT’S MOVING MARKETS

FP’s Keith Johnson: “In its annual five-year oil market outlook, the IEA, which is the energy agency of the Organization for Economic Cooperation and Development (OECD), said that the rise of the United States as a heavyweight crude producer, OPEC’s abdication of its historical role as the arbiter of world oil supply, and sluggish oil demand growth worldwide will have big implications for oil producing and consuming countries alike.”

Bloomberg’s Nikolaos Chrysoloras and Rainer Buergin on Germany toughening its tone toward Greece ahead of a creditor meeting in Brussels: “The discord risks roiling Greek markets again after they were buoyed by optimism on Tuesday that there might be room to move toward an agreement.”

The Wall Street Journal’s Mark Magnier and Tom Wright on deflation fears in China: “Growing risk of a deflationary spiral in China is adding to worries about the global economy and putting more pressure on China’s central bank to expand credit in the world’s second-largest economy.”

FP’s Kate Brannen: “Today, the county’s cradle of innovation resides in Silicon Valley, and the Defense Department is struggling to keep up.”

ISLAMIC STATE: The number of foreign fighters grows as the president prepares to ask Congress for formal authorization to fight.

The Associated Press’s Ken Dilanian: “Intelligence agencies now believe that as many as 150 Americans have tried and some have succeeded in reaching the Syrian war zone.”

Bloomberg’s Josh Rogin: “President Barack Obama will soon give Congress his proposal for a new authorization for the use of military force against Islamic State fighters, and it will place strict limits on the types of U.S. ground forces that can be deployed, according to congressional sources.

AFGHANISTAN: After years of neglect, China is starting to take an interest in Afghanistan.

Reuters: “China has promised to help build a hydroelectric power plant in a violent Afghan border region, as well as road and rail links to Pakistan, in the latest sign it is taking a more active role in Afghanistan.”

AFRICA AND THE MIDDLE EAST: Washington temporarily shutters its diplomatic outpost in Yemen.

FP’s David Francis: “Last month, the Pentagon pre-emptively moved two warships to the Red Sea to help with a potential embassy evacuation in Yemen.”

EBOLA: The Pentagon ends its formal response to the Ebola crisis.

The Associated Press’s Josh Lederman: “The White House says the U.S. and other nations have made substantial progress in fighting Ebola in West Africa and says the response is entering a new phase.”

BOKO HARAM: The fight against Boko Haram edges toward a wider conflict.

The New York Times’ Adam Nossiter: “With the regional war against the Boko Haram militant group widening, Niger’s Parliament has agreed to send troops across the border to join the fight.”

TIME’s Aryn Baker: “Nigeria’s once vaunted military has been hollowed out by corruption, bad leadership, and insufficient training, leaving it vulnerable to Boko Haram’s advance.”

JAPAN: Tokyo continues its evolution on war.

Asahi Shimbun’s Atsushi Hiroshima: “The Abe Cabinet on Feb. 10 approved a new ‘development cooperation charter’ that will allow Japan to extend economic assistance to foreign militaries for the first time.”

AND FINALLY, FP’s John Hudson on an odd mistake by a big paper: “On Tuesday, the front page of USA Today displayed a map of Ukraine that does not include the Crimean peninsula, which Moscow seized last year and voted to formally annex in March.”