By Thomas W. Lippman
Washington Post Staff Writer
Saturday, March 6, 1999; Page A15

An international arbitration panel decided yesterday that a 30-square-mile patch of northern Bosnia around the town of Brcko will become a neutral community under international supervision, rather than part of the Bosnian Serb Republic.

The ruling -- to be enforced by a local multiethnic police force backed up by the NATO-led international peacekeeping force known as SFOR -- settled the last territorial issue left unresolved by the 1995 Dayton peace agreement. But it triggered a political crisis in the Bosnian Serb Republic that threatened to link for the first time old issues from the Bosnian civil war with the current crisis in another, distant part of the now-fragmented Yugoslavia, the Serbian province of Kosovo.

Senior U.S. officials and international diplomats made clear that the arbitration panel, headed by Washington lawyer Roberts Owen, intended the ruling as a slap at the Serbs and at their patron in Belgrade, President Slobodan Milosevic of Yugoslavia. The ruling appeared certain to infuriate Milosevic just as the United States and other Western countries seek his assent to a peace plan for Kosovo due to be taken up March 15 at a meeting in France.

Unlikely as it may seem, yesterday's events made the politics of the former Yugoslavia even more complicated and volatile than they already were.

At the same time the Owen panel's ruling was issued, international officials exercised their authority under the Dayton agreement to dismiss Bosnian Serb President Nikola Poplasen, a foe of the Dayton accord and a protege of Milosevic. They did so after Poplasen initiated an effort to get rid of the Western-backed, pro-Dayton Bosnian Serb prime minister, Milorad Dodik.

But Dodik, rather than seizing the opportunity to consolidate his own power in the Serb-run part of Bosnia, promptly resigned to protest the Brcko ruling, saying he felt responsible for an international insult to the Serbs.

Brcko, near the border with Croatia, is regarded as crucial real estate by both units of Bosnia: the Bosnian Serb Republic and the federation of Croats and Bosnian Muslims. The town straddles a narrow corridor that links the two parts of Serb-held Bosnia, and also sits aside Bosnia's rail link to the rest of Europe.

Before the war, the population was predominantly Croat and Muslim, but during the conflict the region was captured by Bosnian Serb forces who killed or drove out the Muslims and Croats. Since the Dayton peace agreement, the area has been under Serb control but international supervision.

Owen's decision ends that arrangement. The Brcko area will become an autonomous region considered to be simultaneously in both parts of Bosnia but ruled by neither, "a kind of condominium," a senior U.S. official said. The arbitration award "will create a single multiethnic, democratic local government that will exercise, throughout the entire Brcko [region], those powers currently exercised by the two entities and existing municipal administration," the official said.

According to this senior official, the reason Owen did not allow the territory to remain entirely inside the Bosnian Serb Republic was that Poplasen and other anti-Dayton hard-liners had frustrated Dodik's efforts to comply with the peace agreement. He said Poplasen and Milosevic "are the ones responsible today for Brcko now being declared a special district rather than being solely under the sovereignty of Republica Srpska."

He recalled that Milosevic had endorsed the appointment of Owen, a former State Department legal adviser, and had pledged to abide by whatever Owen's panel decided.

Secretary of State Madeleine K. Albright, on her way to London for meetings on the Kosovo conflict, issued a statement calling on all parties in Bosnia to accept and implement the ruling.

"The decision respects the interests of both entities and all Bosnia's people, and provides a real opportunity to see Brcko become an example of reconciliation and progress," she said. "Our commitment to Dayton remains a priority and we will play our role in this process."

Until now, U.S. officials have portrayed the Kosovo conflict as essentially unrelated to Bosnia. Bosnia is an independent country, even if a substantial part of its population feels closer to Serbia than to Bosnia itself. Kosovo, on the other hand, is a province of Serbia where guerrillas took up guns a year ago in a quest for independence.

Yesterday, however, a senior U.S. official accused Milosevic of stirring up trouble in Bosnia to divert attention from what his security forces have done in trying to quell the Kosovo uprising.