* U.S., Britain defend response to Syria violence
* Gates says Gaddafi not target of Western action (Adds quotes, background)
By Missy Ryan and Phil Stewart
WASHINGTON, April 26 (Reuters) - U.S. and British defense chiefs played down on Tuesday the possibility of a Libya-style intervention in Syria, with Britain's Liam Fox saying there were "practical limitations" to Western military power.
Forces loyal to Syrian President Bashar al-Assad are accused of killing hundreds of protesters in an effort to quash demands for an end to his autocratic rule.
But Assad has been spared the threat of NATO air strikes like the ones pounding Libyan leader Muammar Gaddafi's forces with the U.N.-backed objective of protecting civilians.
U.S. Defense Secretary Robert Gates and Fox condemned the killings in Syria. But Fox made clear the two countries' militaries, already stretched by campaigns in Afghanistan and Libya, could only do so much.
"We can't do everything all the time and we have to recognize that there are practical limitations to what our countries can do," said Fox, who along with Gates was asked about the lack of Western intervention in Syria.
Gates said he agreed with "everything Dr. Fox said."
Acknowledging differences in the Obama administration's response to uprisings across the Arab world, Gates said the United States applied its values to all countries in the region, supporting the right to peaceful protest. But he said U.S. actions would not always be the same.
"Our response in each country will have to be tailored to that country and to the circumstances peculiar to that country," Gates told reporters.
The comments came as the United States and Britain considered sanctions as the response to unrest in Syria, and as Assad sent tanks to crush a revolt in the city of Deraa where the country's uprising first started.
"At present the options that we are focused on are diplomatic and financial options," said Jake Sullivan, the U.S. State Department's director of policy planning. He stopped short of saying it was time for Assad to go.
The defense chiefs discussed ways to increase pressure on Libya's Gaddafi amid fears of a stalemate. But Gates denied any plans to kill the Libyan leader, even after NATO flattened a building in his Bab al-Aziziyah compound on Monday.
Gaddafi's government called that a failed attempt on Gaddafi's life and Russian President Vladimir Putin on Tuesday accused some in the West of trying to "execute" Libya's leader of 41 years. [ID:nLDE73P1PB]
"We are not targeting him specifically, but we do consider command and control targets legitimate targets -- wherever we find them," Gates said.
Sullivan said attacking those sites was "part of the operation and it's also part of the reason why the opposition has had some success in pushing Gaddafi's forces back in Misrata."
Fox thanked the United States for supplying Predator drones to strike at targets in Libya, an expansion of the U.S. role even as Washington seeks to limit responsibility in a campaign it wants led by NATO allies.
Fox said he had been encouraged by a withdrawal of Gaddafi's forces from the center of the Libyan port city of Misrata, citing "significant progress made in the last 72 hours."
But the withdrawal could be only tactical, with pro-Gaddafi forces positioning themselves on the edge of the city and using heavy artillery to bombard the port and areas around it. (Additional reporting by Andrew Quinn; Writing by Phil Stewart; Editing by Peter Cooney and Deborah Charles)