His downbeat report, which has been seen by the Independent and will be submitted to the Security Council in New York this morning, serves notice to the Western powers that any hopes they had of disentangling themselves from Bosnia by the end of this year are unrealistic.
"I remain convinced that the goals of the [Dayton] Peace Agreement can be achieved," Mr Bildt writes. "It would, however, be naive to believe that this can be done fully in just one short year."
Western governments have yet to articulate what their continuing role would be in Bosnia, if and when the Nato peace-keeping force is withdrawn before the end of the year, as President Bill Clinton has urged.
Mr Bildt's warning comes as concern deepens about the continuing presence in Bosnia of the former Bosnian Serb leader, Radovan Karadzic. He has been charged with war crimes and is theoretically barred from participation from elections scheduled for September. But Mr Karadzic is believed still to wield overriding influence over the Serbian Democratic Party, the only important Bosnian Serb party.
The US special peace envoy, Richard Holbrooke, yesterday returned to the region to try to ensure Mr Karadzic's withdrawal from the political scene. If he fails, some diplomats believe military action to remove him and bring him to trial at the War Crimes Tribunal may be the only option. Sources close to Mr Bildt say that he believes such a snatch may be the best solution.
The Bildt report, mostly written earlier this month, spells out areas in which parties on the ground are failing fully to implement the provisions of Dayton, such as on human rights protection, prisoner exchanges and the relocation of refugees.
On human rights, Mr Bildt warns that "the performance of the respective authorities can in no way be seen as satisfactory". Noting that ethnic harassment is tolerated and even encouraged, he concludes: "This causes the country to continue to drift apart in a development that is contrary to the declared aim of re-establishing a multi-ethnic society".
He similarly warns that all parties are continuing to detain prisoners in contravention to the Dayton deal.
Other concerns include the lack of objectivity by the local media as well as the fact that, according to his count, at least 65 people who have been charged with war crimes are still at liberty in the country.
If no resolution is found for removing Mr Karadzic, the Security Council may reimpose economic sanctions against the Bosnian Serbs and even against Serbia.