When you lose a war or the toll is too high to continue it, you make consessions. That has been true throughout history, and it's how such wars usually end. Establishing a neutral zone in the southern parts would be the best option at this point.
Even better to not have fuelled the start of war in the first place. Of course who'd thought not respecting decades of promises, expanding a Cold-War-era coalition eastwards right to the neighbors borders, having an orange revolution to topple the government and bring one fueling nationalism instead of promoting co-operation and understanding between the two ethnic population groups in the country, would ever have caused all this? It only ever worked like that in every place imperialism/colonialism passed from.