(Recasts, adds Yatseniuk quotes from Atlantic Council)
By Steve Holland and David Brunnstrom
WASHINGTON, March 12 (Reuters) - Just days before a referendum in Crimea to decide if it should become part of Russia, President Barack Obama and Ukraine's prime minister outlined a potential diplomatic opening on Wednesday that could give Russians a greater voice in the disputed region.
The United States and its European allies are trying to head off the referendum that Crimea's pro-Russian parliament is to stage in the southern region of Ukraine.
Ukrainian Prime Minister Arseny Yatseniuk told an Atlantic Council forum in Washington that his interim government was ready to have a dialogue and negotiations with Russia about Moscow's concerns for the rights of ethnic Russians in Crimea, which has already been seized by the Russian military.
Asked what a political solution would look like, Yatseniuk said: "If it is about Crimea, we as the Ukrainian government are willing to start a nationwide dialogue (about) how to increase the rights of autonomous republic of Crimea, starting with taxes and ending with other aspects like language issues."
"We are ready to start this dialogue - but a constitutional one, in the Ukrainian parliament, having everyone sitting at the table, discussing every single issue and making each step in the constitutional manner," he said.
Obama said the United States and Ukraine recognized the historic ties between Russia and Ukraine, but that Ukraine's government "cannot have a country outside of Ukraine dictate to them how they should arrange their affairs."
"And there is a constitutional process in place and a set of elections that they can move forward on that in fact could lead to different arrangements over time with the Crimean region. But that is not something that can be done with the barrel of a gun pointed at you," Obama said.
In a standoff emblematic of Cold War tensions, diplomatic efforts to persuade Russian President Vladimir Putin to back down from the incursion into Crimea have failed thus far to bear fruit.
U.S. Secretary of State John Kerry will meet his Russian counterpart, Sergei Lavrov, in London on Friday at Obama's request and will discuss options for resolving the crisis.
"My hope is that as a consequence of diplomatic efforts over the next several days, that there will be a rethinking of the process that has been forward," Obama said.
U.S. officials said Kerry gave the Russian foreign minister a one-page paper last week laying out proposals for ending the standoff over Crimea, including the idea of a "contact group" that would bring Russia, Ukraine and other countries together to forge a diplomatic solution.
The United States has also made clear it wants to see Russian forces pulled back to their barracks in Crimea, self-defense militia disarmed and efforts made at direct talks with Kiev.
With Yatseniuk seated at his side in the Oval Office, Obama renewed his pledge to punish Russia with sanctions if Putin does not back down, and ridiculed the hastily arranged referendum plan.
Obama has signed an executive order that permits the United States to impose visa bans and freeze any assets in the United States held by Russians or Ukrainians who provoked the crisis after pro-Moscow President Viktor Yanukovich was ousted.
"We will continue to say to the Russian government that if it continues on the path that it is on, then not only us but the international community, the European Union and others will be forced to apply a cost to Russia's violation of international law and its encroachments on Ukraine," Obama said.
The United States surprised oil markets on Wednesday with the first test sale of crude from its emergency oil stockpile since 1990, prompting a drop in oil prices, in what some observers saw as a message to Russia.
Yatseniuk expressed fears Russia could move deeper into Ukraine after its military seizure of the Crimea region.
"We fight for our freedom, we fight for our independence, we fight for our sovereignty, and we will never surrender," he said.
Yatseniuk said his government was eager and willing to have talks with Russia about Ukraine, but made clear that Ukraine "is and will be a part of the Western world."
"Mr. Putin - tear down this wall - the wall of more intimidation and military aggression," Yatseniuk said to reporters as he left the White House, referring to then-President Ronald Reagan's challenge to the Soviet Union in a 1987 speech at the Berlin Wall.
(Additional reporting by Lesley Wroughton, Roberta Rampton and Mark Felsenthal; Editing by Sandra Maler and Peter Cooney)
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