It looks like Putin could very well get what he wants - annexation of eastern Ukraine. Like many things in foreign policy, he can get it simply by having bigger balls than his opponents (the West).
The Russian strategy seems to be to try to provoke Ukraine into a large scale response. The Ukrainian president already hinted that they would respond more heavily "to a full scale invasion" if Russia kept probing. As soon as Ukraine responds beyond a certain threshold, Russia would retaliate in the interests of "protecting ethnic Russians in east Ukraine from a humanitarian crisis." Russia may admit that the situation on the ground is murky. With Ukrainian military forces fighting Ukrainian separatists and civilians in the crossfire, the best hope for stability will be a Russian peacekeeping force to secure the entire area.
Heavy weapon vs heavy weapon, Russia can overmatch Ukraine. Ukraine has dozens of fairly modern military aircraft. Russia has hundreds of more modern planes as well as cruise missiles, ballistic missiles, and long range SAMs. Russia could move S-300, S-300V, and S-400 SAM systems right to the Ukraine border and easily cover the air west to Dnepropetrovsk. With local air superiority gained, Russian helicopters and attack aircraft could provide unrestricted air support for their numerically superior ground forces.
NATO's response could be to mass aircraft, SAM systems, and some rapid reaction ground forces in Romania and Poland, but it will not directly engage Russian forces for fear of escalation.