Regional Outlook : Yugoslav Conflict Lights a Fuse in the Balkans : * Ethnic ties cross international borders. Neighbors who could help settle the battle might instead be drawn into it.

The Balkan powder keg has exploded.

Yugoslavia’s ethnic conflagration in Croatia has fanned up long-smoldering conflicts in other republics and rekindled old animosities with much of Europe.

Western mediators have tried repeatedly to halt the shooting long enough to force the Serb and Croat warriors to negotiate their differences. But with about a dozen cease-fires already lying in tatters and mounting signals from Serbia that it resents outside help, the “internationalization” of the Yugoslav crisis that moderates have been hoping for may come about through other countries being drawn into the fighting, rather than their diplomatic skills being relied on to end it.

Albania has recognized the independence of Serbia’s province of Kosovo, where ethnic Albanians are a 90% majority. The move has inflamed Belgrade and encouraged separatism among ethnic Albanians angered by Serbia’s three-year police siege of their once-autonomous province.

Hungary is furious over repeated violations of its airspace by Yugoslav air force bombers headed for Croatia, as well as Serbia’s mistreatment of the Hungarian minority in the province of Vojvodina, where entire ethnic villages have been chased into exile by militant Serbs clearing the way to rival Croatia.

If Hungary dared to intercede on behalf of its Yugoslav countrymen, a flare-up of Hungarian nationalism would almost be assured in neighboring Transylvania. In the former Hungarian territory now part of Romania, nationalist resentments and tensions have simmered throughout the 71 years since that region and Vojvodina were taken away as spoils by the victors in World War I.

Bulgaria’s government has renounced territorial claims to the Yugoslav republic of Macedonia. But, in an amplification that disturbs many diplomats, Sofia has reminded the disintegrating Yugoslav federation of its view that Macedonians are actually Bulgarians.

Greece had long refused to acknowledge a separate Macedonian nation, claiming that those living in one of Yugoslavia’s poorest regions are ethnic Greeks. Now the Greek Foreign Ministry is reported to be considering recognition of Macedonian sovereignty to protect the republic from Serbian expansionism as Yugoslavia ceases to exist.

Serbs in ethnically diverse Bosnia-Herzegovina have threatened to declare the regions in which they dominate independent of the republic’s Muslims and Croats, raising the specter of a new ethnic front in what is already proving to be a chaotic and deadly war. Some fear other Muslim states might intercede to protect their Bosnian brothers, expanding the conflict to unimaginable proportions and inviting another world war.

“Everyone is now speaking of military intervention,” says Milovan Djilas, Yugoslavia’s most prominent dissident during four decades of Communist rule and now a respected political observer in the foundering federation.

“The internal conflict cannot be isolated from the foreign world,” contended Djilas, a member of Yugoslavia’s ruling circle until he fell out with Marshal Josip Broz Tito in the 1950s. “Economic sanctions are not effective. This conflict is so irrational that people don’t care about the economy.”

What is needed, in Djilas’ view, is foreign recognition of Slovenian and Croatian secession and a serious threat by the European Community or the United Nations to deploy a peacekeeping force.

From one of the last true defenders of the Yugoslav federation, the call for acceptance of the Western republics’ independence sounds a bell of alarm.

“The situation has changed. There is a civil war in progress,” Djilas said of his change of mind regarding republic separatism. “There is a danger the civil war will spread to Bosnia, and I think recognition would have its importance” as a curb on further violence.

Serbia has shown little concern over threats of an international trade boycott, but that pressure might prove more effective if the isolated republic believes Europe would follow up with bold moves to prevent further Serbian aggression, Djilas said.

“Diplomatic and political pressures are needed to open the perspective of military intervention--serious military intervention, not just propaganda,” said Djilas, a Montenegrin Serb.

Yugoslavs who think the West is ready to march in are deluding themselves, say mediators from the 12-nation European Community. The EC has sought to restore peace since fighting broke out in late June after declarations of independence by Slovenia and Croatia.

Officials in The Hague, where weekly EC-led negotiations among the republics have produced only an aggravating cycle of cease-fires and immediate breakdowns, have warned they may give up on the combatants altogether if they fail to show goodwill to resolve their own problems.

At Friday’s session in The Hague, Serbia underscored its refusal to accept a settlement proposed by Britain’s Lord Carrington. Carrington, who chairs the EC negotiations, called for recognition of all six Yugoslav republics as independent states within their current borders and aligned in a loose trading bloc. Only Serbia has refused to consider the proposal at least as a basis for negotiation.

While Serbia’s rejection intensified the Serbian-led federal army’s resolve to crush Croatian separatism, it may prove to be the decisive step in identifying the largest Yugoslav republic as the main barrier to peace. Even Montenegro, which usually moves in lock-step with its Serbian ally, has distanced itself from President Slobodan Milosevic’s refusal of European mediation.

Federal Defense Minister Veljko Kadijevic announced last week that the army could not accept the EC plan and accused Germany of plotting Yugoslavia’s destruction.

“It is complete political blindness to fail to see who . . . stands behind the breakup of Yugoslavia,” Kadijevic said in a speech to Serbian members of the fractured leadership in Belgrade. “Very openly and with great impatience, Germany is attacking this country for the third time this century.”

Serbia’s fears of Germany have been inflated by the EC effort to mediate the Yugoslav crisis and by Bonn’s threat to recognize Croatia as a means of protecting it from Serbian and federal attacks.

The army has been able to carry out its aggression against the secessionist republics in part because the West still recognizes Yugoslavia as a single country. The army, whose officers’ corps is now nearly 90% Serbian and its rank and file made up mostly of ethnically reliable recruits, has justified its land-grab in Croatia as defense of the Yugoslav state.

Serbs are now pressing for a referendum to determine which ethnic groups should live where. They gloss over how such a vote could be conducted in areas where the populations are thoroughly mixed, such as in Bosnia-Herzegovina and Croatia, where the impossibility of separation is at the root of the current conflict.

Serbia and the army now see the EC proposal for sovereign republics as an attempt, inspired by Germany and Austria, to break up Yugoslavia against Serbia’s will.

“The only way to stop the war is after the territory of Yugoslavia is justly divided,” a deputy defense minister, Gen. Milan Pujic, insisted during a lengthy interview. “If Yugoslavia has to be divided, and it seems that it does, all Western and European Community countries have no right to meddle in our internal problems.”

One reason Western troops are unlikely to intercede in the Yugoslav fighting, despite its threat to spread elsewhere, is the view held by Serbs and the army that such a move would be tantamount to a declaration of war.

“The Yugoslav People’s Army, in whose name I speak, will see any intervention by military forces as an aggression by a foreign country, and the Yugoslav People’s Army will fight to its utmost to prevent this aggression,” Pujic warned.

The Serbian general from Dubrovnik blamed Croatia for the current bloodshed, repeating accusations by Milosevic, Serbia’s Communist leader, that Croatian independence would lead to the rise of a German-dominated fascist state and a genocide of the republic’s 600,000 ethnic Serbs.

“It is the same situation today,” Pujic said, referring to World War II. “We are dealing with the expansionist interests of Germany and Austria. . . . Fascism has raised its head again in those parts (Slovenia and Croatia) and we will now see a repetition of what happened before.”

Serbian claims of a German-Austrian plot have increased in recent days, as the army’s effort to conquer Croatia bogs down with mass desertions, widespread draft-dodging and a spate of autumn rain that has mired tanks and troops on the muddy battlefields.

Winter may work in Croatia’s favor, as the army’s advantage is mostly its superior technology, much of which will be useless as snow and rain slow the hardware’s advance.

Western diplomats and European observers contend that they can only hope for a pause for reflection in the war that has already claimed at least 2,000 lives. They have made clear that no foreign force, be it the European Community or the United Nations, is eager to subject its troops to the obvious risks of stepping into a vicious and irrational war.

“The front lines are so chaotic it would take hundreds of thousands of troops just to impose order,” observed Belgrade journalist Milos Vasic. “One has to remember that everyone in this country has a gun.”

Instead, the Western mediators are holding their collective breath. The two-month siege of Vukovar, in eastern Croatia, has become the testing ground for which side will lose the most in the unwinnable war. Battling to a bloody draw may turn the combatants’ attention to the economic shambles left in their republics, easing the threat of spreading the armed conflict to other areas of the Balkans.

But the bite of falling temperatures and the promise of snow is felt by both sides as they hunker down in farmhouses and cellars in ravaged Vukovar.

The besieged city has come to symbolize the fierce determination of the Croatian national guardsmen, who were far less effective fighters earlier in the war. Zagreb has vowed to defend Vukovar to the end, portending a battle that could cost many more lives.

For the Serbian-led army, which Western diplomats believe has been lured by Milosevic into a suicidal end game, Vukovar may be even more significant. The strategically meaningless city in the midst of boggy farmland has exposed the army to further ridicule after its failure to subjugate tiny Slovenia four months ago.

If the army proves unequal to the ragtag Croatian forces in Vukovar, it would likely be the infantry’s last stand, triggering collapse of the Yugoslav military hierarchy and an internal political crisis in Belgrade that could degenerate into Serbian civil war.