* Assad presses military advantage, targets Deir al-Zor
* Ceasefires in west allow government to redeploy forces
* Peace deal more distant, refugee issue hangs over Mideast
* West to shun Syria reconstruction, Damascus looks to China
By Tom Perry and Suleiman Al-Khalidi
BEIRUT/AMMAN, Aug 17 (Reuters) - Syria's war has entered a new phase as President Bashar al-Assad extends his grip in areas being captured from Islamic State, using firepower freed by Russian-backed truces in western Syria.
Backed by Russia and Iran, the government hopes to steal a march on U.S.-backed militias in the attack on Islamic State's last major Syrian stronghold, the Deir al-Zor region that extends to the Iraqi border. Damascus hailed the capture of the town of al-Sukhna on Saturday as a big step in that direction.
The eastward march to Deir al-Zor, unthinkable two years ago when Assad seemed in danger, has underlined his ever more confident position and the dilemma facing Western governments that still want him to leave power in a negotiated transition.
The war for western Syria, long Assad's priority, has shifted down several gears thanks to the ceasefires, including one organised by Moscow and Washington in the southwest.
But there is no sign of these truces leading to a revival of peace talks aimed at putting Syria back together through a negotiated deal that would satisfy Assad's opponents and help resolve a refugee crisis of historic proportions.
Instead, Assad's face has been printed on Syrian banknotes for the first time, and his quest for outright victory suggests he may retrain his guns on rebel pockets in the west once his goals in the east are accomplished. Attacks on the last rebel stronghold near Damascus have escalated this month.
U.S. President Donald Trump's decision to end CIA support to rebels further weakened the insurgency in western Syria, while also depriving Western policymakers of one of their few levers of pressure.
They can only watch as Iranian influence increases through a multitude of Shi'ite militias, including Lebanon's Hezbollah, that have been crucial to Assad's gains and seem likely to remain in Syria for the foreseeable future, sealing Tehran's ascendancy.
Assad's opponents now hope his Russian allies will conclude he must be removed from power as the burden of stabilizing the country weighs and the West withholds reconstruction support.
With hundreds of thousands of people killed and militias controlling swathes of the country, Assad's opponents say Syria can never be stable again with him in power.
"There is little doubt that the Russians would like a political solution to the war. The war is costly for them, and the longer it lasts, the less it will appear to be a success for Putin," said Rolf Holmboe, Research Fellow at the Canadian Global Affairs Institute and former Danish Ambassador to Syria.
"But the Russians want a solution on their terms, which is one where Assad stays in power," he said.
"The ceasefires do two things. They allow the Russians to take control of the political negotiations and look good internationally. But more importantly, they allow Assad and the Iranian-backed militias to free troops to grab the territory that Islamic State is about to lose."
THE WAR FOR DEIR AL-ZOR
The eastwards advance has on occasion brought government forces and their Iranian-backed allies into conflict with the U.S. military and the forces it is backing in a separate campaign against Islamic State.
But the rival campaigns have mostly stayed out of each other's way. Government forces have skirted the area where Kurdish-led militias supported by Washington are fighting Islamic State in Raqqa. The U.S.-led coalition has stressed it is not seeking war with Assad.
Bisected by the Euphrates River, Deir al-Zor and its oil resources are critical to the Syrian state. The province is entirely in the hands of IS except for a government stronghold in Deir al-Zor city and a nearby air base. It is also in the crosshairs of the U.S.-backed Syrian Democratic Forces (SDF).
SDF spokesman Talal Silo told Reuters on Wednesday there would be an SDF campaign towards Deir al-Zor "in the near future", though the SDF was still deciding whether it would be delayed until Raqqa was fully captured from Islamic State.
But questions remain over whether the government and its allies, or the U.S.-backed militias, have the required manpower. IS has rebased many of its fighters and leaders in Deir al-Zor. The Syrian army is drawing on the support of local tribal militias in its advances, local tribal figures say.
A Western-backed Syrian rebel with detailed knowledge of the area said Deir al-Zor would be a tough prospect. "Deir al-Zor tribes are more intertwined with those of Iraq," the rebel said, describing them as religious hardliners.
Andrew Tabler, a Syria specialist at the Washington Institute for Near East Policy think-tank, said Assad hoped to regain international legitimacy through the campaign against IS.
"They believe that by doing so they can get reconstruction money, and they believe that things are going to go back to the way they were before. That's just not going to happen," he said.
There has been no sign that Western states are ready to rehabilitate Assad, accused by Washington of repeatedly using chemical weapons during the war, most recently in April. Syria denies using chemical weapons.
RULING "ATOP RUINS"
The April attack triggered a U.S. missile strike against a Syrian airbase. But the U.S. response was calibrated to avoid confrontation with Moscow, and has not resulted in further such action.
Trump's decision to shut down the CIA programme of support meanwhile played to Assad's advantage and came as a blow to the opposition. Rebel sources say the programme will be phased out towards the end of the year.
Damascus has been pressing ahead with its strategy for pacifying western Syria, pursuing local agreements with rebellious areas that have resulted in thousands of rebel fighters being sent to insurgent areas of the north.
But significant areas of western Syria remain in rebel hands, notably Idlib province in the northwest, a corner of the southwest, an area north of Homs, and the Eastern Ghouta of Damascus.
In the southwestern province of Deraa, one of the areas in the U.S.-Russian truce, the government is seeking investment in reconstruction, the provincial governor told al-Watan newspaper, saying the "shelling phase" was over.
Shunned by the West, the government hopes China will be a major player in the reconstruction. Seeking to project an image of recovery, Damascus this week will host a trade fair.
"The regime is quite keen to imply by signals that it doesn't care, that 'we are fine, we are really utterly prepared just to sit atop ruins, and to speak to friends who will help us with our project'," said a Western diplomat.
Mohanad Hage Ali, director of communications at the Carnegie Middle East Center, said the Assads have been "masters of the waiting game". Time is on their side, he said. "But they have two challenges: political normalisation with the world, and the economic challenge, which is significant." (Writing by Tom Perry; editing by Giles Elgood)
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