The move comes less than a month after several companies operating in Georgia were forced to sign various contracts – some for a year, others for as short as three months – with Kremlin-owned gas giant Gazprom.

In his statements on January 18, Putin openly connected the two events. “Unfortunately, in recent years, Russia and Georgia have come across already well-known problems,” he said. “At the same time, last November we agreed with the President of Georgia that we shall take steps towards the normalization of bilateral relations. The first such important step was taken last December when we signed an agreement on supplies of Russian gas to Georgia in accordance with market principles.”

Tbilisi has repeatedly refused to consider the Russian price – $235 per 1000 cubic meters – anything more than political blackmail but a series of events forced gas suppliers and factories to sign the contracts despite the promise of cheaper gas from the Shah Deniz pipeline and Azerbaijan.

While Georgian President Mikheil Saakashvili has been adamant about cutting the country’s dependency on Russian gas, Putin has been equally inflexible in his policy of equating gas sales with friendly relations. During the January 2007 spat with Belarus, Putin openly threatened to cut aid to the country formally considered Russia’s biggest ally if Minsk did not start playing by the rules.

Although there is no sign that Georgia is ready to back down in its search for new sources of natural gas, Tbilisi has welcomed the return of the Russian ambassador – and the underlying signal that Moscow is reconsidering its tactics against its southern neighbor. According to a report by the Russian newspaper Kommersant, Russian authorities rethought their Georgia strategy and decided that it has done them more damage in the eyes of the international community than it damaged the Georgian economy, which still reportedly managed to grow in 2006 at a healthy 7 percent, if not more.

“The Kremlin’s estimations that sanctions would lead to the fall of Saakashvili turned to be invalid… On the contrary, the anti-Georgian campaign has damaged [Russia’s] reputation both in Georgia and in the West,” the paper noted. “After analyzing all these factors, policy-makers in the Kremlin have apparently concluded that only saying no to sanctions can improve the situation.”

According to Valeri Chechelashvili, a deputy minister in the Georgian Foreign Ministry, the masterminds behind the embargo and other sanctions were disappointed. \"The impact on the Georgian economy was not nearly so drastic as those who designed this policy hoped it would be,\" Chechelashvili reportedly said, according to an article in the Telegraph. \"The damage to the economy was only in the ballpark of about $150 million, while GDP still grew at over seven per cent.\"

However, while the return of the ambassador is a positive sign that Moscow is backing down to European and American pressure, the Kremlin has been eager to stress that the sanctions are still on. While media sources in Georgia have speculated that the transportation blockade and other sanctions might be lifted next, there is no word from the Kremlin on any immediate plans to that effect.

In fact on January 10, one of the remaining members of the Russian diplomatic team in Georgia noted that while Russian visas would be issued again in Tbilisi, there was no indication from the Russian Foreign Ministry when that process would start. Likewise, while Russia is working with Moldova to reinstate Moldovan wine exports to the Russian market, no such overture has been made to Georgia.

Likewise, Georgian media reported on January 19 that air travel between the two countries would resume shortly. However, there has been no indication from Russia that such plans exist. The decision to reinstate the Russian ambassador in Georgia is vital to improving ties between the two countries. However the relations between Moscow and Tbilisi have reached such a low point that it will likely take more than this to motivate a real, constructive dialogue between them.