LAST week the republic of Bosnia declared itself sovereign from what used to be Yugoslavia - but is now a "state" controlled by Serbia and the Serb-led Yugoslav military.This is a momentous step considering that Bosnia is an ethnic tinderbox of Muslims (44 percent), Serbs (33 percent), and Croats (18 percent) bordering the Serb-Croat war zone. Moreover, it is a step Bosnian President Alija Izetbegovic, a Muslim, would rather not have taken. Throughout the secessionist crisis in Yugoslavia, Mr. Izetbegovic has been a consummate conciliator with the ever-more-aggressive Serbian politicians in Belgrade and in Sarajevo. As all sides begin to arm themselves, he knows only too well the potential for a bloodbath in Bosnia. The so-called federal Army has been preparing for a fight there for some time. That Izetbegovic would agree to sovereignty, something Serbs leaders in Bosnia and Serbia are dead set against, shows how far conditions have deteriorated. He was backed against the wall both by his own Muslim constituency and by Serbian Bosnians who want to slice Bosnia into nine separate regions - many of which would become part of the "Greater Serbia" envisioned by Serbian President Slobodan Milosevic. The idea of bloodletting in Bosnia - a beautiful, mountainous land whose cosmopolitan capital, Sarajevo, resembles San Francisco - seems today fantastic. Yet as the strange dream of a Greater Serbia plays out in the Balkans, what yesterday seemed impossible and unreal today is talked about as something perfectly plausible. What Izetbegovic wants, and what reasonable Serbs living in Bosnia want, ironically, is the model of the old Yugoslavia - a state where all ethnic groups live together under a rule of law. Yet this becomes impossible when the Serbian party of Bosnia talks of dividing the country and when troops from the hard-line republic of Montenegro march into Bosnia, as they did last month. Serbs may fight with Croats under the pretense of ethnic provocation. But the Muslims have done no provoking. If federal "Yugoslav" troops fight for Serbs in Bosnia, that will strip the mask off Mr. Milosevic. Real sanctions should follow.