The agreement, reached at a seaside hotel near Athens, represented the most important breakthrough in Serb-Croat relations since Yugoslavia collapsed into civil war in 1991.
Before the surprise meeting in Greece between the two presidents, Croatia made clear it would not agree to mutual recognition unless rump Yugoslavia, which comprises Serbia and Montenegro, acknowledged Croatia's international borders. In practice, this meant that Mr Milosevic would have to renounce any claim on Eastern Slavonia, an enclave in Croatia which was seized by the Serbs in 1991 and is the last piece of Croatian territory still in Serb hands.
Eastern Slavonia is under a transitional UN administration but, in accordance with an agreement last year, should revert to Croatia's control by the end of 1997. Yesterday's announcement appeared to seal this agreement, dashing the hopes of Serbs in Eastern Slavonia that Mr Milosevic might absorb their region into rump Yugoslavia.
An accord on mutual recognition was also held up by territorial disputes on the Adriatic coast between Croatia and Montenegro. Other problems, such as how to divide up former Yugoslavia's foreign debt among the five successor states, are gradually being solved.
Yesterday's agreement may leave a bitter taste in the mouths of Serbs who thought the purpose of the Serb-Croat wars of 1991-95 was to protect Serb minorities in Croatia, or merge their areas into an expanded Greater Serbian state.
As events turned out, Mr Milosevic's war brought not territorial gains but the almost total destruction of the centuries-old Serb communities of western and southern Croatia.
Moreover, few expect the Serbs of Eastern Slavonia to stay when their region returns to Croatian rule. It is more probable that, like the Serbs of Sarajevo earlier this year, when their districts passed to Muslim-Croat control, they will abruptly abandon their homes.
Although the Bosnian war ended with Serbs gaining 49 per cent of Bosnia, this was little compensation for the epochal defeat suffered in Croatia. Yet so tight is Mr Milosevic's control of Serbia that he has paid no price for this catastrophe.Reuse content