Ministers agreed to freeze Serbian assets and ban new European investment there, and signalled support for military action if necessary.
In a statement, ministers said: "The European Union remains ready to press ahead with other measures against Belgrade if the authorities there fail to halt their excessive use of force."
They encouraged international security organisations "to consider all options", including force.
"Modern Europe will not tolerate the full might of any power being used against civilian centres of population," Mr Cook said after the Luxembourg meeting.
A Foreign Office spokesman said: "Nobody was saying we have to decide today to go to war but everyone agreed that when you are dealing with Slobodan Milosevic you can exclude no option."
Germany, the Netherlands and the British EU presidency led calls for a hardline approach and although that was balanced by a softer line from the French, the statement that emerged was tougher than expected.
Mr Milosevic was condemned for "a campaign of violence going far beyond what could legitimately be described as a targeted anti-terrorist operation". There was "a new level of aggression on the part of the Serb security forces". The Serb leader was urged to withdraw its "special" police units from Kosovo immediately.
Klaus Kinkel, foreign minister of Germany, which fears an influx of refugees, predicted great resistance in the UN Security Council to military intervention and said it might be more realistic to push instead for a beefed-up observer mission in Kosovo.
In Washington, Bill Clinton's National Security Adviser Sandy Berger said the issue of military intervention was not at this stage under discussion.
In Kosovo, foreign diplomats caught their first glimpses of the devastation inflicted on separatist strongholds, after being escorted to the west of the province by the Serb authorities. "What we've seen is all sorrow, all grief - villages burned and destroyed, all the people had left," said the Dutch ambassador, Jan Sizoo.Reuse content