Foreign ministers of the European Community (EC) agreed Tuesday on a two-step peace plan for Yugoslavia that melds French and German suggestions to isolate any party refusing international arbitration of the conflict - currently understood to be Serbia.The first step calls for a peace conference to be accepted by all Yugoslav parties by Sept. 1. For two months a five-member group, made up of EC legal and judicial experts, would negotiate a compromise. If all parties do not agree to attend the peace conference, the EC will call a international conference including all parties who accepted the Yugoslav peace conference as well as outside countries, but barring Yugoslav parties who did not. French Foreign Minister Roland Dumas decribed the plan as a "last chance" to stop the increasingly deadly war. Croatian and Yugoslav Army leaders began meetings on an Adriatic island Tuesday seeking to end the ethnic conflict. But clashes were reported Wednesday involving Serbian guerrillas, federal troops, and Croatian units. German officials, who have already brandished the threat of recognizing the independence of Slovenia and Croatia if the fighting doesn't stop, said recognition of Croatia could be the result of the plan if Serbia does not consent to arbitration. Some observers, however, voice concerns that the threat of recognition is inciting Serbian guerrillas in Croatia, backed by the Serb-dominated federal Army, to quickly take control of much of southern, Serb-dominated Croatia. In addition, British Foreign Minister Douglas Hurd said that the EC must be careful "not to raise hopes" that it is about to intervene militarily to stop the fighting, something recognition might suggest. "If there is not a will for peace, there will not be peace," he said. "It cannot be manufactured from Brussels."