The report by Lord Owen and Thorvald Stoltenberg says the Bosnian Serbs are insisting on dividing the city and establishing the capital of a Serbian republic in their part of it.
Yesterday's session of the talks failed to take place after President Alija Izetbegovic of Bosnia refused to take part until the Serbs carry out their promise to withdraw from strategic mountain-tops above the city.
The Serbs lowered their flag on one peak yesterday, but showed no sign of leaving Mount Igman, which directly overlooks the city.
In Brussels Nato issued an ultimatum to the Serbs, warning them that if the siege is not lifted the alliance will be able to mount air strikes within 48 hours.
Before strikes can be launched Nato ambassadors must agree unanimously; a meeting can be called at 'very short notice', a communique said last night. Then Boutros Boutros-Ghali, the UN Secretary-General, must authorise the first use of air power. After the first strike it is likely that he would delegate his powers, Nato officials said.
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