Erdut - Rebel Serbs in Croatia agreed in principle yesterday to allow the return of Croatian authority over the small swath of territory they still control in eastern Slavonia, after a transition period.
The agreement, reached at the first talks between Croats and rebel Serbs since a Croat offensive against the Serbs in August, may solve a dispute that could otherwise derail US efforts to end the war in neighbouring Bosnia.
"This is an important first step for a peaceful resolution of the crisis," the UN negotiator Thorvald Stoltenberg said after the talks, which he co-hosted with the US ambassador to Croatia, Peter Galbraith.
Following the adoption of an 11-point document of basic principles, "we see a negotiated peaceful settlement within the internationally recognised borders of Croatia on the basis of internationally recognised human rights", he added.
Solving the dispute over the Serb-held territory in eastern Slavonia is vital to any settlement that may be reached to end the war in Bosnia.
Mr Galbraith, who has been shuttling for months between the rebel Serb leaders and Croatian officials, described the agreement as "a significant step forward".
But he cautioned that tough negotiations lay ahead. "This a skeleton for reaching an agreement," he said.
The 11-point basic principles for further negotiations include Croatia's right of sovereignty over the region, deployment of international forces in the area during a transition period, demilitarisation of the region and the return of thousands of Croat refugees who fled when the Serbs took the region in the 1991 Serb-Croat war.
Mr Galbraith said that among the unresolved issues was the length of the transition period. Serbs wanted five years, while the Croats said it should not exceed 18 months.
Croatia has warned that it would retake the region by force if an agreement on its peaceful reintegration is not reached before 30 November, when a UN peace-keeping mandate expires.
In early August, Croat troops recaptured most of the territory held by Serbs since the1991 war, which followed Croatia's declaration of independence from Yugoslavia.
Croatia mounted that offensive against the Serb-held Krajina region despite assurances from Mr Galbraith that Serbs had promised at the last minute to agree to the peaceful reintegration of Serb-held areas into Croatia. About 160,000 Serbs fled the Krajina offensive. Serbia, which originally backed the rebel Serbs in Croatia and in Bosnia, did not intervene.
The document agreed yesterday said that "a transitional authority shall be established by the UN Security Council to administer the region during the transition period."
The authority will include a way to represent the interests of the Croatian government, local Serbs, returning refugees, displaced persons and ethnic minorities, the document said.
The authority "will also take steps to re-establish Croatian institutions in the region such as telephones, post offices, banks, pension offices, passport and citizenship offices."