The battle flared when Croatian troops - put at 6,000 by Serbian leaders in Krajina - stormed over a truce line separating the two sides in the Serb-occupied area near the Adriatic coast.
The UN Security Council issued a statement last night urging the Croatian authorities 'to withdraw their forces to positions occupied before this offensive'. Radovan Karadzic, self-styled leader of Bosnian Serbs, pledged that his forces would go to the help of Serbs in Krajina if Croatian attacks there did not stop.
The area is one of four UN Protected Areas occupied by Serbian militias a year after the truce which ended Croatia's war of secession from Yugoslavia. Serbian forces had to hand over their heavy weapons, including tanks and artillery, to the UN.
In Washington, the new Clinton administration is already expressing doubts that a peaceful settlement can be reached at the talks starting in Geneva today. Yesterday it indicated that the US might soon propose providing weapons to Muslims in Bosnia as one way out of the deadlock.
'At this point, it is an idea we are considering,' a spokesman for the State Department confirmed. President Bill Clinton is expected to discuss Yugoslavia policy at a first formal meeting with his foreign affairs and security advisers at the start of next week.
The possibility of exempting Bosnian Muslims from the blanket UN embargo on arms sales to the region was first raised by the new Secretary of State, Warren Christopher, during Senate confirmation hearings last week. But officials made it clear yesterday that such a step would not signify less support for the mediation efforts of Lord Owen or Cyrus Vance.
In her confirmation hearings, Madeleine Albright, designated as US ambassador to the UN, said Bosnia was 'clearly the highest priority of the President in the National Security Council's agenda'.
In London, a cabinet committee chaired by the Prime Minister refused last night to endorse a plan by Lord Owen for British forces to play a policing role in Bosnia if the Owen-Vance peace plan establishes a sustained ceasefire.
Malcolm Rifkind, Secretary of State for Defence, is opposed to a change in the humanitarian role of the British forces, now escorting aid convoys, to policing a ceasefire. 'They would get caught up in the cross-fire and we don't want that,' said one defence source.
After the three-hour meeting at 10 Downing Street, Lord Owen said: 'I was just there to talk about the negotiations as they are. The British forces made a very important contribution on the humanitarian aid effort with the Spanish and French in Bosnia and this is a role which continues.
'Of course if we were to secure a cessation of hostilities and an overall comprehensive package . . . then it would be for the individual governments and the United Nations to make up their own mind how they would help what would be a Security Council resolution dealing with the cessation of hostilities.'
Douglas Hurd, the Foreign Secretary, said they discussed British 'anxieties' and underlined the reluctance to allow troops to be used as peace-keepers. 'Their role is a humanitarian one.'
Air bridge, page 9
Letters, page 15