* Syrian army enters rebel-held Deraa, raises flag* Deraa city was scene of first big protests in 2011
* Israel signals won't oppose Assad campaign near Golan frontier
* "I'm lost," says Syrian sheltering at frontier
The Syrian government raised the national flag on Thursday over areas of Deraa city that have been in rebel hands for years, a major victory for President Bashar al-Assad in the birthplace of the revolt against his rule.
State television said the army hoisted the flag near the post office, the only government building in the portion of the city that had been held by rebels since the early days of the uprising that began there in 2011 with large protests.
Government forces backed by Russian air strikes have recovered swathes of Deraa province in the last three weeks, advancing unopposed by Assad's Western and regional foes into the strategically vital region near Jordan and Israel.
It marks another milestone in Assad's efforts to recover control of Syria, where civil war is estimated to have killed hundreds of thousands of people and driven some 11 million people from their homes.
The campaign in the southwest is now expected to target rebel-held enclaves at the frontier with the Israeli-occupied Golan Heights. Israel signalled it would not impede the offensive, even as it struck Syrian army posts near the frontier in retaliation for a drone incursion.
With critical help from Russia and Iran, Assad has now recovered most of Syria. Anti-Assad rebels still control a chunk of the northwest, and the northeast and a large chunk of the east are controlled by Kurdish-led militia.
As Assad pursues military victory, there appears to be little hope of a negotiated peace which Western governments say is needed to bring stability and encourage refugees to return.
Heavily outgunned, rebels in parts of Deraa province reached an agreement to surrender territory last week. In Deraa city, rebels are still in talks with Russian officers to secure safe passage out, rebel officials said.
A senior Russian military delegation entered the rebel-held area of the city on Thursday and began negotiations over its handover to state rule, rebel officials and a witness said.
A rebel official told Reuters negotiations were proceeding smoothly, with the Russians so far abiding by the terms of the deal, under which rebels would hand over weapons, and fighters who do not wish to live under state rule would be evacuated.
"Everyone is committed to the agreements," said rebel official Abu Jihad, adding rebels had already begun since late Wednesday handing over their heavy weapons.
Two armoured vehicles with senior Russian officers entered the devastated old city and began talks with commanders from the Free Syrian Army (FSA) on implementing the terms of the deal.
One rebel official said fighters hoped the Russians would keep a pledge to maintain a permanent Russian military police presence to protect civilians and former rebels who stay.
The southern rebels were once armed as part of an aid programme run by the US Central Intelligence Agency and backed by Assad's regional foes including Saudi Arabia. The United States, which shut down the programme last year, told the rebels not to expect its military aid as the southern offensive began.
The offensive has prompted the single biggest displacement of the war, uprooting more than 300,000 people. Many are sheltering at the frontier with the Israeli-occupied Golan Heights. Both Israel and Jordan have refused to let refugees in.
Ahmad al-Hariri, one of thousands sheltering near the Golan frontier, said he did not know where to go after the army took his village of Hrak in Deraa.
"I'm lost...Even if they want to expel or slaughter us, I don't want to hand myself over to the Syrian regime. You can't trust it," he told Reuters. "Under the warplanes...I carried my kids and did not expect to arrive here."
The Damascus government says it targets only militants.
The rebel-held northwest has previously been a refuge for rebels and civilians who fear a return of Assad's rule. But some fear areas there could be the next target.
Abu Hussam al-Aboud, who also fled Deraa, said he did not want to stay away and did not know his village's fate.
"Everyone tells you something different, we don't know what's happening," he said. "We came here out of fear, because of the shelling. Our houses are gone, they're on the ground," he added, speaking near the frontier with Israel.
Prime Minister Benjamin Netanyahu, briefing Israeli reporters on a visit to Moscow, indicated that Israel would not act against Assad. Israel is working to ensure the exit of the Iranian forces that fight alongside government forces.
"We never had a problem with the Assad regime. For forty years (after the 1973 Middle East war), not one bullet was fired on the Golan Heights," a reporter for Israel's Haaretz newspaper quoted Netanyahu as saying.
"The heart of the matter is retaining our freedom of action against anyone who acts against us, and the removal of the Iranians from Syrian territory," Netanyahu said, a day after meeting Russian President Vladimir Putin.
Putin also held talks on Syria with Ali Akbar Velayati, a top adviser to Iran's Supreme Leader, in Moscow on Thursday.