AS the Muslim-led Bosnian government drives to reclaim land and the international community's peace plan for Bosnia-Herzegovina falters, international mediators start high-level talks this week between Croatia and rump Yugoslavia.
Stymied by Bosnian Serb intransigence, and by the Bosnian government's offensive that recaptured 75 square miles of territory last week, peace efforts are increasingly focusing on achieving Serb-Croat rapprochement, viewed as critical to an overall peace settlement in former Yugoslavia.
But prospects of the new initiative bringing about an end to the bitter three-year Croatian conflict between rebel Serbs and government forces appear remote, as neither side is willing to make the kind of compromises needed to achieve a settlement, according to Western diplomats.
The new Serbo-Croat dialogue begins on Friday when Yugoslav Foreign Minister Vladislav Jovanovic holds talks with his Croatian counterpart, Mate Granic, in Zagreb. Regularly scheduled meetings are to follow.
The meetings are expected to focus on finding a formula for the reintegration of Croatia's Krajina region, which Belgrade-backed local Serbs seized in a rebellion against Croatian independence in 1991.
The peace initiative comes as the rebels, whose self-proclaimed Republic of Serbian Krajina occupies a third of the country, resume internationally mediated discussions with Zagreb on restoring economic ties, seen as crucial to achieving a political resolution of the conflict.
But a measure of the formidable task facing the major powers is that both sides have spurned a new peace plan that is barely off the drawing board.
The so-called Z-4 group - United States, Russian, European Union, and United Nations representatives - is working on an initiative granting the Serbs a high degree of autonomy in two municipalities in exchange for returning most of the land currently under their control.
The plan, which has been through at least 10 drafts, according to a senior Croatian Foreign Ministry official, appears to go some way toward meeting the Krajina Serbs' demands for self-rule, providing them with many ``elements of statehood,'' such as their own police force and currency. At the same time, it attempts to satisfy the Croats' insistence on the territorial integrity of their country by allowing them to control their borders.
SENIOR Krajina official Branko Filipovic said the Serbs want to administer all the land they hold. ``A compromise based on loss of territory is unacceptable for us. It would be suicidal,'' he said.
Croatian peace negotiator Hrvoje Sarinic said the Serb autonomous areas had been granted too many powers: ``Croatia excludes discussions about giving Krajina the attributions which would make it a state within a state.''
UN officials in Belgrade privately concede that the initiative is in danger of joining the scrapheap of peace plans rejected by the warring parties in former Yugoslavia.
``There are no grounds for optimism,'' one senior UN source says. ``Under pressure, the Serbs are prepared to negotiate, but not to compromise on issues that matter.''
But some diplomats hope Serbia's President Slobodan Milosevic will press for the reintegration of the Krajina Serbs and ultimately recognize Croatia. They believe he will be encouraged to do so by the prospect of being rewarded with an easing of UN sanctions against Belgrade.
Mr. Milosevic appears to have started backpedaling on his goal of his long-standing goal of a ``Greater Serbia'' - the union of Serbia and Montenegro with Serb-held lands in Bosnia and Croatia - as a means of lifting the trade embargo and averting economic collapse.
But while Milosevic is desperate to have the blockade relaxed, the Serbian leader has said that he will not recognize Croatia until the Krajina Serbs are offered a deal that ``would safeguard their legitimate interests.''
According to Western observers in Belgrade, Milosevic would probably settle for a high degree of political autonomy, but will need time to persuade the Krajina Serbs to compromise and overcome his detractors at home.
``Milosevic will probably try to narrow the gap between Krajina's demands, which are unrealistic, and the international community's offer of autonomy,'' one Western diplomat says.
Western envoys hope progress in resolving the Croatian conflict will persuade the Serbs in Bosnia to accept the peace plan for that country.
Serbia's blockade of the Bosnian Serbs has left them isolated, but they've sought to counter this by reaching out to their ethnic brethren in Croatia, calling for the unification of the self-styled Serbian mini-states.
* Jonathan S. Landay contributed to this report from Zagreb, Croatia. HD: International Mediators Shift Focus From Bosnia to Croatia