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Serbia/Croati How Will Formal Diplomatic Relations Affect Bosnia?

Prague, August 8 (RFE/RL) -- The two most powerful politicians in the former Yugoslavia claim to have taken another step away from war and toward rebuilding their nations.

At talks in Athens yesterday, Serbia's President Slobodan Milosevic and Croatia's President Franjo Tudjman agreed to establish diplomatic relations. The talks are believed to be the first direct encounter between the two leaders since Croatia declared its independence in 1991.

Greek Prime Minister Costas Simitis announced the agreement, telling reporters that "a general framework for solving problems and establishing diplomatic relations" had been agreed. He said the relationship is to be formalized by the end of this month.

Yesterday's meeting was arranged by Simitis at the request of the Serbian President. Greece has close ties with Serbia, based on their common Orthodox Christian tradition.

The agreement was "a big step in the interest of both countries," Milosevic said, according to Yugoslavia's Tanjug news agency.

In Croatia, Tudjman said: "We agreed on normalization of all issues and all open problems."

Among the issues that have been holding back establishment of relations between the two is disagreement over Eastern Slavonia, the last piece of Croatian territory still in Croatian Serb hands.

The international community recognizes Eastern Slavonia, currently under United Nations administration, as belonging to Croatia. Preparations are being made for its return.

Additionally, there are disputes over territory at the Southern end of Croatia's Adriatic Coast that borders strategic Kotor Bay in Montenegro. Serbia and Montenegro comprise the Yugoslav federation. Croatia also is concerned that Croatian Serb forces are still too close to its Adriatic port, Dubrovnik, located up the coast from Kotor.

Tudjman and Milosevic reportedly agreed to work for a peaceful solution to this and other issues. They also said they would seek full freedom for refugees to return home, ensure mutual protection of property, normalize communications, economic relations, and freedom of movement -- all key points in the Dayton Accords for Bosnia. Rapprochement between Serbia and Croatia has been under way for some months, with road, rail and telephone links recently being restored.

Political analysts in Belgrade said Milosevic, who faces elections this year, is anxious to normalize relations with Croatia before turning his attention to other problems at home.

Further details of the accord are sketchy and it is uncertain what effect, if any, Croatia's and Serbia's improving relations might have on Bosnia, which is wedged between the two. One European correspondent, writing for the Associated Press, says that it could further squeeze Bosnia's Muslims.

Another correspondent suggests that Tudjman was forced into recognizing Serbia, while Croatian Serb troops still occupied part of his country, out of fear that an "entente" was underway between Bosnia's Muslims and Serbia. The correspondent referred to it as the latest "re-balancing" in what has been called the Balkan's "vicious triangle."