By Gareth Jones and Patryk Wasilewski
WARSAW, July 9 (Reuters) - Poland's prime minister said on Wednesday his country could reach agreement with the United States in two weeks on a missile defence shield, but indicated he would not budge on tough conditions he has set for a deal.
Washington signed an accord this week with Prague to install a tracking radar on Czech soil as part of the shield project, but Warsaw wants hefty U.S. investments to upgrade its air defences as a condition for hosting 10 interceptor missiles.
Russia, which views the missile defence shield as a direct threat to its security, said it was "extremely upset" by the Czech deal and that it was considering how to retaliate.
"The hard negotiating position presented by my government has a chance of succeeding. I am convinced that in the case of the missile shield the American side is beginning to understand our motives," Polish Prime Minister Donald Tusk told reporters.
"We are ready for final conclusions in two weeks, but the Polish point of view has to be respected."
Washington wants the shield to protect itself and its European allies against possible attack by what it calls "rogue states", particularly Iran, or by terrorist groups. It says the shield is no match for Russia's formidable military arsenal.
But Warsaw is wary about further exacerbating already tense ties with Moscow, its former communist-era overlord, and also argues that hosting the interceptors would increase the risk of Poland being targeted by terrorists or rogue states.
U.S. Pentagon spokesman Bryan Whitman said on Wednesday Washington wanted the interceptors sited in Poland but would consider other options if a deal proved elusive.
"RETALIATORY STEPS"
Critics of Tusk's centre-right government, including Poland's conservative President Lech Kaczynski, say it has overplayed its hand in the negotiations, putting at risk Warsaw's traditionally very warm security ties with Washington.
"(Russia's reaction) proves we need to strengthen our alliance with the United States, because beyond our eastern border there are politicians who use a language we thought had vanished many years ago, the language of might and imperial ambitions," top Kaczynski aide Michal Kaminski told reporters.
Last week, Tusk rejected what had been billed as the final U.S. offer in the negotiations. The details of that proposal have not been made public, though Tusk has said it included putting Patriot batteries on Polish soil for one year.
Some political analysts say Warsaw does not want an accord with a U.S. administration leaving office in less than a year.
Polish Foreign Minister Radoslaw Sikorski held talks in Washington this week with the two U.S. presidential candidates, John McCain and Barack Obama, after failing to end the deadlock on missile defence with Secretary of State Condoleezza Rice.
McCain said Iran's decision to test-fire nine missiles on Wednesday proved the need for a European missile defence shield.
President Dmitry Medvedev reaffirmed Russia's opposition to the shield plan during a summit of the Group of Eight leaders in Japan also attended by U.S. President George W. Bush.
Asked about the Czech agreement, he said: "We will not be hysterical about this but we will think of retaliatory steps."
He did not specify what these measures might be but Moscow has said in the past it would point missiles at Poland and the Czech Republic if they went ahead with the shield deployment. (Additional reporting by Washington bureau) (Writing by Gareth Jones, editing by Jon Boyle)