Michael Fischer, THE ASSOCIATED PRESS

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ST. PETERSBURG, Russia - German Chancellor Angela Merkel and her Russian counterpart, President Dmitry Medvedev, have butted heads over Georgia at a meeting in Moscow.

Russia recognized the separatist regions of South Ossetia and Abkhazia as independent states following its brief war with Georgia in August.

But Merkel told Medvedev at a meeting on Thursday that pro-western Georgia's territorial integrity is "non-negotiable."

The German leader expressed hope that international talks expected to start later this month will help resolve the issue.

Medvedev stood firm in his insistence that Russia did the right thing after Georgia tried to retake South Ossetia by force.

He said the war there displayed the need for a new international security system that Moscow has been pushing even as NATO vows to continue its eastward expansion. Russia has criticized Georgia's drive for NATO membership and says the alliance is outdated.

"Unfortunately, the latest events in the Caucasus showed that global security system in effect today is incapable of averting military escapades, and we must do everything we can to create a modern, reliable architecture of this security for the future," Medvedev said.

Western countries have reacted coolly to Medvedev's calls for a new security system encompassing Russia, Europe and North America.

"I hope the number of backers of this idea will increase," Medvedev said.

The talks came as EU monitors patrolled in strips of Georgian land outside South Ossetia and Abkhazia for a second day. Both leaders praised the deployment, which is supposed to be followed by the withdrawal of Russian troops from the areas within 10 days.

Despite the European Union patrols, tension persisted in the buffer zone outside South Ossetia on Thursday.

Georgian Interior Ministry spokesman Shota Utiashvili said South Ossetia militia raided a village in the area of Kere and set buildings on fire.

The raid could not be independently confirmed, but an AP Television News crew saw ambulances and fire trucks heading toward the village.

European Union monitors, however, reached the "preliminary" conclusion that the fire was not conflict-related, mission spokesman Juri Laas said.

The monitors began patrolling the buffer zone Wednesday.

For Russia and the West, the dispute over the status of the Georgian separatist regions is a source of discord with no end in sight.

Medvedev said Russia's disagreements with the West should not lead to a new Cold War.

"Maybe somebody would like to divide the world into allies and strangers, into those who are right and those who are wrong, but here in Russia we are confident that this time has irreparably gone," Medvedev said.

"Just as it's impossible to rebuild the Berlin wall, it's impossible to return to the Cold War," the Russian president said. "We shouldn't cling to the past now. What we need now is the mutual dependence."

Medvedev and Merkel spoke after their an annual summit designed to strengthen political and economic ties between Russia and Germany.

Merkel was spending only one day at this year's summit with Russia, instead of the usual two, and was travelling with a smaller delegation than usual - six cabinet members, including the finance and foreign ministers, and some business leaders.

The two delegations also discussed the global financial crisis, and Medvedev again pointed to the United states as the chief culprit. He spoke a day after Prime Minister Vladimir Putin said Wednesday the U.S. had failed to react effectively to the economic troubles.

"Behind the problems that have occurred stand flaws in the economic policy, the model of development that the United States has adopted in recent years, for which practically all of us now have to pay," Medvedev said.