ZAGREB, YUGOSLAVIA — ON the surface, life appears normal in the Croatian capital. The cafes on Republic Square are as a crowded as ever. Residents enjoy traditional evening strolls on the narrow cobbled streets of Zagreb. And even the nightclubs are packed.But under the surface, there's a deep sense of anxiety. Until now, the major battles have been restricted to Slovenia in the north. But if Yugoslavia slides into civil war, the main violence will pit the two largest republics - Serbia and Croatia - against each other. Slovenia is ethnically homogeneous and united in its determination to win independence. In Croatia, a large Serbian minority opposes Croatian independence. "Everything looks normal outside," says Damir Jozic, a law student. "But inside our souls, we all feel fear." Croatia took less assertive steps toward leaving the Yugoslav federation than Slovenia. Unlike its neighbor, it didn't try to take control of border posts. Apparently as a result, the Army did not attack on Croatian territory. Still, the Croats don't trust the Serbs or what they consider the Serbian-dominated federal Army. Reporters arriving here are given a thick document describing "terrorist" activities in Croatia. For a year now, sporadic shootings have taken place in villages shared by Serbs and Croat militia. The Croats believe Serbian leaders want to carve up their territory and create a greater Serbia. "The Serbs want a great Serbia and the Army is supporting them," says Mario Nobilo, a key adviser to Croatia's president. "And although the cease-fire was written, the Army is still there, we have all these [Serbian rebel] Chetniks there, and we have mobilization in Serbia, mounting of troops on border." The clashes between militiamen along the Croatian-Serbian border have grown nastier lately. The Croats accuse the federal Army of taking the Serbian side; the 100,000-man Croatian militia has been mobilized and is ready to fight. "We already have war, a small war," says Croatian Defense Minister Sime Dodan. "The question is whether it will become a large war." Serb-Croat hatreds are rooted in history. The Croats are proud of their Western roots - they are Roman Catholics and began industrializing under the Hapsburgs. They view the Orthodox Serbs as infidels. To the Serbs, the Croats are arrogant nationalists. During World War II, Croatia was a Nazi puppet state led by the Ustasi, which murdered hundreds of thousands of ethnic Serbs and Jews for refusing to convert to Catholicism. "The opinion of Croatian people is that Serbs put us in a position of slaves," says Mr. Jozic. "Serbs had the main role in the Yugoslav state before ... and after the Second World War." Croatia's nationalist resurgence is clouded by signs of this inferiority complex. The leadership presents the battle ahead as a struggle of democracy against communism, free markets against state planning. But unlike the vigorous democratic politics practiced in Slovenia, the ruling Croatian Democratic Union is so dominant that it resembles a one-party state. The press practices self-censorship and offers little criticism. Economic reform is stalled. "We have been under so much attack that economic reform has been forgotten," says Information Ministry official Vera Skataretiko. "It's hard to move forward when you are facing an insurrection." Despite the posturing, many Croats want to avoid a disastrous war. Croatian President Franjo Tudjman has gone on television to plead for peace. He says Croatia would respect the cease-fire deal hammered out this week by European Community representatives and Yugoslav leaders. Over the next few weeks, Croatia faces a delicate balancing act. Although willing to compromise on details, the republic continues to insist that its ultimate goal is independence. That demand puts it on a collision course with the Serbian Republic, which adamantly opposes having fellow Serbs fall under foreign control. If all-out civil war comes to Yugoslavia, it will be because Croats and Serbs are unable to reach a compromise.