I think one way to diffuse this may be through back channel negotiations between NATO and Putin, using someone like Macron as an intermediary, where they negotiate some sort of inducement for Putin to pull back in exchange for certain sanctions being lifted. In order for that to work, Putin would have to already be feeling incredible pain back home to where he feels not doing something may jeopardize his grip on power. Only then, would he be incentivized to pull back a bit. But it would only work if the pain and instability in Moscow scare him enough to act.
This of course presupposes that Putin is mentally stable and a rational actor. If he isn't, then I think he doubles down on violence and the chances of NATO/EU military involvement inside Ukraine go up significantly.