* Government and Hezbollah troops take village near Qusair
* Moscow says it could speed up delivery of missiles
* Hollande: it's unacceptable to arm Damascus before talks
By Mariam Karouny
BEIRUT, May 31 (Reuters) - Forces loyal to President Bashar al-Assad tightened their siege of rebels in a strategic town on Friday, in a counter-offensive that is shifting the balance of the Syrian war ahead of a peace conference next month.
Rebels said they had managed to infiltrate new fighters into the town of Qusair on the Lebanese frontier, where they are encircled by Assad's army and his allies in Lebanon's Hezbollah militia who have openly joined the war on his behalf.
The battle comes amid a blizzard of diplomacy ahead of the conference called by the United States and Russia, the first time in a year that the global powers ranged on opposing sides in Syria's civil war have agreed to talk about a way to end it.
If the summons to peace talks in Geneva was intended to calm rhetoric it has had the opposite effect, with Russia and the West issuing tit-for-tat threats to escalate the conflict by sending arms to the warring sides.
The two-year war has killed at least 80,000 people and has divided the world and split the Middle East on its dangerous sectarian faultline between Sunni and Shi'ite Muslims. Millions of Syrians have fled their homes and sectarian violence is surging in neighbouring Lebanon and Iraq, with recent histories of Sunni-Shi'ite civil wars of their own.
Russia and Iran back Assad, a member of the minority Alawite sect, an offshoot of Shi'ite Islam. Western countries, most Arab states and Turkey all back the rebels, mainly drawn from members of the majority Sunni sect.
Moscow suggested on Friday it could speed up the delivery of advanced anti-aircraft missiles to Assad's government to prevent Western intervention, although it also floated the idea that it could suspend the shipment, turning the missiles into an apparent bargaining chip ahead of the peace talks in Geneva.
French President Francois Hollande said it was unacceptable for Moscow to discuss arming the Syrian government ahead of the peace conference, even as he emphasised the importance of his own and his allies' threat to arm the rebels.
INITIATIVE SWINGS TO GOVERNMENT
The rebels made major gains in the second half of 2012, seizing swathes of the country from Assad's forces and leading Western leaders to declare that the president's days in power were surely numbered.
But the initiative on the ground over the past few weeks has swung towards Assad's forces, newly bolstered by thousands of seasoned, Iran-backed Hezbollah fighters who have now openly joined the war after months of providing more furtive support.
Assad and Hezbollah have pushed rebels back on the outskirts of the capital Damascus and all but surrounded fighters in Qusair, which controls supply routes at the Lebanese frontier that are vital both for the rebels and for Hezbollah.
Government and Hezbollah forces continued their advance, taking control of the village of Arjun 4 miles (six km) to the northwest of Qusair.
Rebels have lost more than two-thirds of Qusair and say they are now hunkered down in the town centre, lightly armed. Seizing the town would give Assad control of territory between Damascus and the coast, heartland of his fellow Alawites.
The Syrian Observatory for Human Rights, a pro-opposition monitoring group based in Britain, said hundreds of rebel reinforcements had managed on Friday to reach Qusair from the north to help defend it.
"It is too soon to tell if they can make a difference. We will have to watch today and see if they can help the fighters create a turning point," said the Observatory's head Rami Abdelrahman.
Fighting also raged in Ghouta on Damascus's eastern edge as government forces pressed on with an assault begun several weeks ago. They have pushed rebels from near Damascus International airport and closed off a main conduit for arms from Jordan.
SANA, the Syrian national news agency, said government forces had destroyed a 200 metre-long, 10 metre-deep tunnel used by fighters to link Harasta, a Damascus suburb, to the Damascus-Homs highway, Syria's main north-south road.
Activists said heavy clashes were also taking place in Deraa, cradle of the revolt against Assad, which began in 2011 as part of the wave of unrest sweeping the Arab world and has evolved into by far the bloodiest of those uprisings.
The new U.S. push to revive diplomacy is driven by suspicion that chemical weapons have been used, reports of worsening atrocities on both sides and a growing realisation that neither side is likely to end the war with victory any time soon.
SAUDI ROLE GROWING
Washington has also been alarmed by the growing influence among the rebels of fighters pledged to al Qaeda. The U.N. Security Council slapped international sanctions on Friday on the al-Nusra front, a powerful rebel group that has declared its loyalty to the group founded by Osama bin Laden.
The rebellion has been funded and armed by the wealthy Gulf Arab states Saudi Arabia and Qatar. Lately, rebels say Qatar is stepping back and the Saudis are playing a bigger role, with the aim of tightening control over who gets arms and money and curbing Islamists.
The diplomatic confrontation between the West and Russia has focussed lately on plans to arm the warring factions. Last week, the European Union allowed an embargo to expire allowing member countries like France and Britain to announce plans to arm the rebels if Assad does not yield power.
Russia has responded by saying it will go ahead with shipments of advanced S-300 anti-aircraft missiles which could make any Western plans to impose a no-fly zone to protect the rebels far more dangerous.
The missiles could also threaten Israel, which has carried out three air strikes on Assad's forces in recent months.
A Russian arms industry source was quoted by Interfax news agency as threatening to hasten delivery of the hotly-contested missiles if the West were to impose a no-fly zone or Israel were to launch new air strikes.
However the source also "did not exclude that the delivery of the S-300 to Syria could be frozen for a period of time" Interfax reported, suggesting that the deployment could be on the table in Geneva.
France's Hollande set out his country's position - shared with Britain and other allies - that the West must be able to arm the rebels as long as Moscow is arming Assad.
"We cannot accept that when we are preparing Geneva 2 (talks) with the idea of finding a political solution, that Russia is delivering weapons at the same time to Assad's regime, and that we should be (prevented) from delivering weapons to the opposition," Hollande said.
"To ensure the political solution happens, you should never put aside the option of military pressure, and in this case it is lifting the EU embargo."
Yuri Ushakov, President Vladimir Putin's foreign policy aide, said it was the EU's decision to lift its embargo on arming the rebels that was "not conducive to preparations for such an important international event" as the Geneva conference. (Additional reporting by Thomas Grove in Moscow; Writing by Peter Graff; Editing by Andrew Roche)