The Arab League threatened harsh economic penalties against Syria and called on the government to engage the opposition in planning a political transition, in a warning to President Bashar al-Assad that Arab states are closing ranks against his regime.

Meeting in Cairo on Thursday, the pan-Arab body gave Damascus 24 hours to agree to admit observers, its third deadline to Syrias government in three weeks.

The move comes amid growing international efforts to isolate the Assad regime.

In recent days, Secretary of State Hillary Clinton and French Foreign Minister Alain Juppé discussed ways for the international community to play a greater role in providing humanitarian aid to Syria and preventing human rights abuses, according to a senior U.S. official.

Up until this week, the Obama administration had downplayed the idea of any outside intervention into Syria. But Mr. Juppé said Wednesday in a French radio interview that Paris was floating proposals to assist humanitarian aid convoys going into Syria, as well as assisting international monitors.

At the Cairo meeting, the Arab League outlined an unprecedented set of economic sanctions it would consider if Syria again fails to comply with a protocol on admitting observers. The observers are intended to monitor the implementation of an Arab plan that calls for Syria to pull government forces from cities.

Damascus, continuing a crackdown that activists estimate to have claimed 3,500 lives, has missed the first two deadlines.

The Arab League also suggested it was nearing a consensus on the need for Mr. Assad to step down by calling for talks between the government and the opposition on a “transitional period,” the first explicit reference from the body on a post-Assad phase.

The proposed economic measures—which include stopping flights into the country, banning trade, barring transactions with Syria’s central bank and freezing government funds—could significantly slow Syria’s economy.

Syrian economists estimate over half of the country’s non-oil exports—mostly agriculture, processed foods, and cotton—are sold to Arab countries.

Arab diplomats said the league intends to isolate Mr. Assad from his supporters without inflicting harm on a population already starting to suffer from U.S. and European sanctions.

“The Arab League has never done anything like this in its 66-year history,” said Salman Shaikh, director of the Brookings Doha Center think tank. “In its totality, the league has helped push the sanctions regime along and helped push multilateral pressure.”

What the impact of Arab League sanctions would be is unclear. The Arab League doesn’t have a mechanism to enforce sanctions, officials say, and measures could have limited impact if member states, some of which still object to penalizing the Syrian regime, don’t abide by them.

Tracking the regime’s funds would also prove difficult, with the government conducting financial transactions through individuals who may not be known regime insiders, according to Samir Seifan, an economist who has advised the government in the past and is now aligned with the opposition.

“Sanctions alone will not bring down the regime,” Mr. Seifan said. “But when the regime starts to be a source of chaos and hunger rather than stability and order, it loses legitimacy in the eyes of people with whom it still retains legitimacy. It makes people nervous.”

A spokesman for Syria’s ministry of foreign affairs, Jihad Makdissi, said Syria was “still in a period of exchange with the secretary-general” of the league, adding that he was hopeful Syria would respond by Friday.

Syrian Foreign Minister Walid Moallem earlier this week said Damascus didn’t consider time constraints to be as important as securing an acceptable plan. He accused the Arab League of infringing on Syria’s sovereignty with its requirements for the observer mission.

A European oil embargo and a standstill in tourism have already sent the Syrian economy into contraction from government forecasts of 4% economic growth this year, Mr. Seifan said.

Turkey, Syria’s onetime ally which this week formally called for Mr. Assad to step down, could also push through its own promised sanctions. Syria maintains support from ally Iran, though that source is also under pressure from international sanctions.

The Arab League voted on Nov. 12 to suspend Syria from the group for continuing its crackdown on protesters despite accepting a plan to withdraw troops from cities. On Tuesday, the United Nations General Assembly backed a resolution that blasted Syria’s crackdown.

Despite signs of growing international momentum against the Assad regime, there were indications of resistance by some of the Arab League’s over 20 members. On Thursday, Algeria’s foreign minister walked out of a meeting of the committee tasked with overseeing Syria’s implementation of the group’s plan.

But in a statement distributed later, the Arab League called on Syria to agree by Friday to the observer mission. The Arab League sanctions are set to be discussed by the group’s economic committee on Saturday, and then raised to a meeting of Arab foreign ministers on Sunday.

The League also said it would ask the U.N. secretary general to “take the necessary measures…to solve the crisis in Syria.”

—Jay Solomon contributed to this article.Write to Nour Malas at nour.malas@dowjones.com and Matt Bradley at matt.bradley@dowjones.com