* Hard words a day after largely symbolic sanctions
* Obama had been pressed to act on Syria, after Libya
* U.S. reluctant to risk more military involvement (Adds Clinton interview, paragraphs 4-6)
By Patricia Zengerle
WASHINGTON, May 19 (Reuters) - U.S. President Barack Obama called on Syrian President Bashar al-Assad on Thursday to lead a transition to democracy or step aside, but stopped short of demanding his departure over a brutal crackdown on pro-democracy protesters.
"The Syrian people have shown their courage in demanding a transition to democracy. President Assad now has a choice: He can lead that transition, or get out of the way," Obama said in a speech spelling out U.S. policy toward the rapidly changing Middle East and North Africa.
After joining a NATO military intervention to stop Libyan leader Muammar Gaddafi's forces from attacking civilians seeking his overthrow, Obama has been under pressure to do more about Syria. But his administration does not want to risk getting the United States, already fighting wars in Afghanistan and Iraq, into another war in a Muslim country.
U.S. Secretary of State Hillary Clinton said there was no pressure in the international community to take more aggressive steps in Syria.
"There's no appetite for that. ... There's no willingness. We haven't had any of the kind of pressure that we saw building from our European NATO allies, from the Arab League and others, to do what has been done in Libya," Clinton said in a CBS News interview.
Asked why Obama would not say Assad needs to go, Clinton responded: "Assad has said a lot of things that you didn't hear from other leaders in the region about the kind of changes he would like to see. That may all be out the window, or he may have one last chance."
The United States, and Syria's neighbors, which include Israel, Iraq and Turkey, are also extremely wary of the chaos that could ensue if there is not a peaceful transition of power in the country of 23 million.
Washington took one step on Wednesday by moving to freeze U.S. assets of Assad and top aides, the first time the Obama administration had targeted Assad personally with sanctions.
'THE PATH OF MURDER'
Obama's speech on Thursday pushed the response further and raised the question of whether the West eventually would seek Assad's overthrow.
"The Syrian regime has chosen the path of murder and the mass arrests of its citizens," Obama said, hailing popular unrest sweeping the Middle East and North Africa as a "historic opportunity" to deepen U.S. ties to the broader region and ease suspicions of its policies.
Obama said Syria has followed the lead of its ally, the U.S. antagonist Iran, and sought Tehran's assistance "in the tactics of suppression." But he indicated Washington was still willing to work with Assad if he would talk to his political opponents.
"We (Washington) have many allies among Syria's neighbors and they fear the chaos that would follow the fall of Bashar al-Assad and they would like to see evolution rather than revolution," said Jon Alterman of the Center for Strategic and International Studies, a Washington think tank.
By contrast, "the neighbors of Libya would very much like to see Muammar Gaddafi gone," he added.
Syrian activists say at least 700 civilians have been killed in two months of clashes between government forces and protesters seeking to end Assad's 11-year rule, which followed decades of iron-fisted control by his father.
Syrian authorities say the total is far lower, and that dozens of security forces have also been killed. But the Assad family's control of the country appears shakier than it has been in 30 years.
Obama listed demands for Damascus, saying it must stop shooting demonstrators and allow peaceful protests; release political prisoners and stop unjust arrests; allow human rights monitors access to cities that have seen protests and violence; and start a "serious dialogue" leading toward a democratic transition.
"Otherwise, President Assad and his regime will continue to be challenged from within and will continue to be isolated abroad," he said.
Obama's administration had sought to increase U.S. engagement with Damascus, in hopes that it could entice Syria away from Iran's sphere of influence.