Three years ago, hard-line nationalists at the helm of the ruling Serb Democratic Party told authorities in a town near here to shut down a legislator's department store. His crime: He had called them corrupt and criticized their refusal to accept a proposed cease-fire in the ethnic war against Croats and Muslims.

Last week, in a development that astonished many residents of Bosnia's Serb Republic and elated the Western overseers of its reconstruction, that lawmaker, Milorad Dodik, was elected the republic's prime minister. His razor-thin victory in the assembly has breathed new life into Bosnian Serb politics and now threatens to loosen the hard-liners' remaining grip on power.

In his Jan. 18 acceptance speech, Dodik said he wants to restructure and privatize the economy, separate the republic's politics from its Serb Orthodox religion, promote an independent media and guarantee equal rights for all citizens. He further pledged to devote himself to "urgent and efficient" implementation of the 1995 Dayton peace accord,

In an interview over the weekend, Dodik went beyond the positions of his Western-backed benefactor, President Biljana Plavsic, by promising to seek an equitable solution to the refugee problem and eventually to transfer all Serb war criminals to international authorities. Foreign governments seeking to implement the Dayton accord have identified refugee returns and the arrest of suspected criminals as key elements to restoring peace to Bosnia.

Once denounced as a traitor by state-run media, Dodik, 38, has collected a crucial endorsement from Yugoslav President Slobodan Milosevic, long the political kingmaker here. Delighted U.S., European, and U.N. officials have pledged financial support totaling tens of millions of dollars to resuscitate the devastated Bosnian Serb economy and bolster Dodik's political standing.

"This is a key moment in history," said Jacques Klein, the U.S. diplomat who is deputy high representative for the international community in Bosnia. Klein played a key role in securing Dodik's election, first by persuading Plavsic to ignore a walkout by hard-liners in the Bosnian Serb assembly and to hold the vote without them, and then by obtaining NATO troops' assistance in finding a missing legislator needed to maintain a quorum at the session.

But it remains unclear whether Dodik -- who effectively was elected by one vote -- will be able to garner the public support to seize all the reins of power from hard-liners. His political party, the Independent Social Democrats, holds just two of the 84 seats in the assembly, and his views are antithetical to the nationalists' lingering dream of creating an ethnically pure state, separated from the rest of Bosnia and united with neighboring Serbia.

If Dodik is anxious about his political fortunes, he does not show it. At his office, down the hall from Plavsic, he radiated confidence that "what is important for people is a peaceful life," in addition to finding an adequate job and decent housing.

"This government, after stabilization of the political situation, will be the government to comply in full" with the Dayton accord, Dodik said. That means a country made up of two entities -- the Bosnian Serb Republic and the Croat-Muslim federation -- with joint institutions that have been "freed of all those extremes" that led to Bosnia's war. Those who seek to make trouble and defy the segment of the republic's police force under his control "are risking being declared a terrorist," Dodik said.

Bosnian Serb hard-liner Radovan Karadzic, the former Serb Democratic Party chairman who is an indicted war crimes suspect, controls the police in the republic's eastern half. Dodik set an ambitious Feb. 18 deadline to complete unification of the police force, and his interior minister reached an agreement in principle today with senior Serb Democratic Party officials.

Dodik also pledged to move the republic's capital to Banja Luka, its second-largest city, from Karadzic's stronghold in the ski resort of Pale. In response, Karadzic claimed Dodik's government is illegitimate. But Karadzic's attempt to organize a rival parliamentary session in the city of Bijeljina this weekend sputtered when members of the allied Serb Radical Party declared that they had accepted Dodik's election.

Dodik suggested the time has come for a new generation of leaders in Bosnia's two political entities and neighboring Croatia. Calling the war the product of "crazy politicians," he asked: "How can we today expect these people, who didn't preserve a multiethnic state, to build such a place?"

At the same time, Dodik added, those who see the Dayton accord as an interim step toward creation of a unified Bosnia are being unrealistic. The consequences of the war are so great that "it's impossible to return or build the society which existed in 1992," he said.

Even so, Dodik's election has provoked a growing sentiment here that political attitudes may be beginning to change. "This region is breathing with some kind of democracy. It's like champagne, it's out and it's bubbling over. You can't push it back in," said Zoran Kalinic, director of the independent Nezavisna Radio Television stations in Banja Luka.

Dodik said he favors a "global return" of refugees displaced by the fighting "in a certain period of time . . . to enable everybody to return at once." But first he will host the chief refugee official from the Muslim-Croat federation and send his own appointee on a return visit -- an exchange that was impossible under the republic's previous prime minister, Gojko Klickovic, a member of the Serb Democratic Party.

Dodik also said that after his supporters gain "real power . . . we will establish cooperation" with the International War Crimes Tribunal in The Hague. Asked to explain what he meant, Dodik said: "We will surrender those who are accused of the war crimes. . . . Now, we have no power and no means. At this moment, it would be political suicide, because we are not stable." But he promised to seek cancellation of the republic's constitutional ban on extradition, and said he hopes to transfer indictees "soon" afterward.

Dodik cast his lot with the Serb Democratic Party's opposition after obtaining a political science degree from Belgrade University before the war and returning to his home town of Laktasi, north of here, to look for a job. According to Nenad Bastinac, the general secretary of his party, Dodik was denied a work permit because his father had formed a private farming cooperative in violation of Communist Party rules.

But Dodik formed his own businesses, got elected as chief of the municipal government and became known throughout Yugoslavia for his willingness to cut through the bureaucracy to register new private firms. "His main way of thinking is to do what's needed, do it fast, and after that worry about how you fill out papers and so on," said Damir Miljevic, a businessman and friend of Dodik's who has a Liberal Party seat in the parliament.

Bastinac said Dodik's battle with the republic's hard-liners is in some ways the culmination of a 20-year fight dating back to the Communist era between nascent capitalists and ruling autocrats over whether the economic system will be made more open, more fair and less corrupt. "All these obstructions are from people who will lose their benefits," he said. CAPTION: A NEW ERA IN BOSNIA?

A moderate Serb legislator, Milorad Dodik, 38, was elected prime minister of the Bosnian Serb Republic earlier this month. Although elected by the thinnest of margins, he has revealed an ambitious plan to solidify peace in the Serb part of Bosnia: - Implement the Dayton peace accord - Seek an equitable solution to the refugee problem - Turn over all Serbs suspected of war crimes to the international tribunal in The Hague - Unify police forces of the Serb Republic and the Muslim-Croat federation, as required under the Dayton accord, by Feb. 18 - Move the capital of the Serb Republic from Pale, a stronghold of hard-liners, to Banja Luka. - Privatize and restructure the economy - Separate religion and politics - Promote independent media - Guarantee equal rights for all citizens CAPTION: Milorad Dodik