SARAJEVO, YUGOSLAVIA — BOSNIA and Herzegovina, with the most volatile mix of nationalities in Yugoslavia, may have the most to lose from a spread of ethnic violence in the country. The republic's population is 44 percent Muslim, 33 percent Serb, and 17 percent Croat.For 40 years this rugged, mountainous republic has had peace. Yet the war next door between Croatia and Serbia has increased ethnic tensions to a level no one imagined a year ago. "In the Yugoslav context, Bosnia is a laboratory to see if people of different nationalities can live together," says the editor of Oslobodenje, Sarajevo's largest independent daily newspaper. "If they can't, because of the racial mix, there could be more people killed here in 15 days than in 15 years in Lebanon." Bosnia-Herzegovina has been on the brink of violence for weeks. The tension may subside if the Yugoslav Army continues to weaken, as it did last week in Croatia when it pulled back from positions in Vinkovci. But ethnic tensions in Bosnia and Herzegovina have a separate momentum. Egub Gascic, chief of the Bosnian Crisis Committee, told the Monitor the European Community should send observers "before it is too late." Diplomats and observers here say tensions are due largely to a campaign of intimidation by Bosnia and Herzegovina's Serbian Democratic Socialist Party (SDS), which, with the support of the almost entirely Serbian federal Army, is promoting a strategy of regionalization that would carve the already-tiny republic into 10 ethnic regions or "cantons." Bosnia-Herzegovina is an important part of Serbian President Slobodan Milosevic's vision of a "Greater Serbia," they say. "Bosnia has to be cantonized," says Velibor Ostijic, Minister of information for Bosnia and Herzegovina, a Serb who speaks for the Serbian party. "The war in Croatia means Yugoslavia no longer exists as it did. The problem is how to divide Serbs from Croats in this country." Yet the problem for Serbs in Bosnia and Herzegovina is not as much Croats as it is Muslims, who have been in Bosnia and Herzegovina since the 16th century. Muslims represent a sticky political problem for Belgrade. An expansion into Bosnia and Herzegovina could pull the mask off Serbia's larger intentions of territorial conquest, analysts say. A Serbian move into Bosnia and Herzegovina cannot take place, as in Croatia, on grounds of ethnic persecution. There is also no Bosnian and Herzegovinan equivalent to Croatia's openly anti-Serb President Franjo Tudjman. Muslims have no desire to split Bosnia and Herzegovina into 10 regions. Bosnia-Herzegovina is the only region Muslims can claim in the Balkans, unlike Croats or Serbs. "Ethnic districts are impossible," says Muhamed Cengic, vice president of Bosnia and Herzegovina and a Muslim. "The regionalization the Serbian party is arguing for is rapidly bringing us to civil war," he says. Other Serb provocations include federal Army recruits sent to train in Bosnia and Herzegovina and confirmed reports that the Army is arming Serb villagers. Since July, Serb leaders in four Bosnian and Herzegovinan regions declared those areas autonomous. The declarations were made without a referendum on grounds of self-determination for an ethnic majority. Adding to tensions last week, pro-Serbian Army reservists from the republic of Montenegro marched into the Nertva River valley region of Herzegovina, intimidating local Muslims. Last weekend, a federal Army agreement to remove the troops had been breeched, reporters near the town of Mostar said. Serb villagers had been told the Army was there to protect them. A Bosnian crisis committee found no evidence of Muslims threatening Serbs in the region, although they did find Muslim property destroyed and 5,000 Muslim refugees on their way to Dubrovnik. If it comes to war, Muslims will certainly side with Croats, their leaders say. For the time being, they have a tight course to steer between the Croatian Party that is closely linked to Zagreb - and the SDS, controlled from Belgrade. Reports last spring suggest Mr. Tudjman and Mr. Milosevic discussed splitting Bosnia and Herzegovina between them, though some analysts feel the talks were a trap designed to weaken Muslim Croat relations. The difference between the republic's two Muslim parties are complex, but boil down to how best to avoid bloodshed. Muslims do not want to fight, one of president Alija Izetbegovic's aids told a reporter from Borba, the independent daily Belgrade paper. "But don't think they wouldn't spring up and make civil war. We are trying to keep them down because Muslims have no other country to go to," he said. Mr. Cengic told the Monitor he expected violence in "10 days if matters don't improve." Other sources sa y this is an exaggeration. In a related development, Muslims, who are a majority in the Serbian region of Sendjak, last week threatened to declare themselves an autonomous region if Yugoslavia falls apart and Bosnian and Herzegovinan Serbs split off. Whether Milosevic will allow a region to separate from Serbia will be a test of his intentions, say liberals in Belgrade.