* Convoy had entered Ukraine without government's permission
* Western states demanded withdrawal of "illegal" convoy
* NATO, White House say Russian artillery used inside Ukraine
* Germany's Merkel arrives in Kiev for talks
* Shelling destroys homes in rebel-held city of Donetsk (Edits, updates with Merkel arrival, NATO comments)
By Dmitry Madorsky
DONETSK-IZVARYNE BORDER CROSSING, Russia, Aug 23 (Reuters) - T rucks from a Russian aid convoy started crossing back into Russia on Saturday after unleashing a storm of anger in Western capitals a day earlier by driving into Ukraine without the permission of the government in Kiev.
The return of the trucks may help ease the tension to some extent in time for talks in Ukraine's capital on Saturday between visiting German Chancellor Angela Merkel and Ukrainian leaders over how to end the crisis in the ex-Soviet republic.
Western leaders had joined Kiev in calling the Russian convoy -- about 220 white-painted trucks loaded with tinned food and bottle water -- an illegal incursion onto Ukraine's soil, and demanded that they be withdrawn as soon as possible.
A Reuters journalist at the Donetsk-Izvaryne border crossing, where the convoy rolled into Ukraine on Friday, said over 100 trucks had passed back into Russia and more could be seen in the distance arriving at the crossing.
Russian state television had earlier broadcast footage of some of the trucks being unloaded at a distribution depot in the city of Luhansk, eastern Ukraine. The Russian foreign ministry said the aid reached its intended destination.
The city is held by separatist rebels who are encircled by Ukrainian government forces, and has been cut off from power and water supplies for weeks. International aid agencies have warned of a humanitarian crisis.
NATO said it had reports that Russian troops had been firing artillery at Kiev's forces inside Ukraine - fuelling Western allegations that the Kremlin is behind the conflict in an effort undermine the Western-leaning leadership in Kiev.
"Since mid-August we have multiple reports of the direct involvement of Russian forces, including airborne, air defence and special operations forces in Eastern Ukraine," said NATO spokeswoman Oana Lungescu.
"Russian artillery support - both cross border and from within Ukraine - is being employed against the Ukrainian armed forces," she said.
Russia denies giving any material help to the rebellion in eastern Ukraine, a mainly Russian-speaking region. It accuses Kiev, with the backing of the West, of waging a war against innocent civilians.
The conflict in Ukraine has dragged Russian-Western relations to their lowest ebb since the Cold War and sparked a round of trade sanctions that are hurting already-fragile economies in European and Russia.
The German leader landed in Kiev and was scheduled to meet Ukrainian President Petro Poroshenko and Prime Minister Arseny Yatseniuk.
Diplomats say she will show support for Kiev, but also urge Poroshenko to be open to peace proposals when he meets Russian President Vladimir Putin for talks next week.
In the rebels biggest stronghold, the city of Donetsk, there was unusually intense shelling on Saturday. That may be part of a drive by government forces to achieve a breakthrough in time for Ukrainian Independence Day, which falls on Sunday.
The crisis over Ukraine started when mass protests in Kiev ousted a president who was close to Moscow, and instead installed leaders viewed with suspicion by the Kremlin.
Soon after that, Russia annexed the Ukrainian region of Crimea, and a separatist rebellion broke out in eastern Ukraine. In the past weeks, the momentum has shifted towards Ukraine's forces, who have been pushing back the rebels.
The separatist are now encircled in their two strongholds, Luhansk and Donetsk.
Reuters reporters in the city of Donetsk said that most of the shelling was taking place in the outskirts, but explosions were also audible in the centre of the city.
In Donetsk's Leninsky district, a man who gave his name as Grigory, said he was in the toilet on Saturday morning when he heard the whistling sound of incoming artillery. "Then it hit. I came out and half the building was gone."
The roof of the building had collapsed into a heap of debris. Grigory said his 27-year-old daughter was taken to hospital with injuries to her head. He picked up a picture of a baby from the rubble. "This is my grandson," he said.
In another residential area, about 5 km north of the city centre, a shop and several houses had been hit. Residents said two men, civilians, were killed.
Praskoviya Grigoreva, 84, pointed to two puddles of blood on the pavement near a bus stop that was destroyed in the same attack. "He's dead. Death took him on this spot," she said. (Additional reporting by Maria Tsvetkova and Tom Grove in Donetsk, Ukraine, Adrian Croft in Brussels, Richard Balmforth and Natalia Zinets in Kiev and Vladimir Soldatkin in Moscow; Writing by Christian Lowe; Editing by Ralph Boulton)