Ethnic Discord : Peaceful Island for Serbs, Croats : As Yugoslavia’s war rages around it, Bosnia-Herzegovina clings to brotherhood.

In this mountain-rimmed city best remembered as the launch pad for World War I, Bosnian Muslims, Serbs and Croats today live together in peace and perplexity.

In the 78 years since a Serbian nationalist assassinated Austria’s crown prince and plunged Europe into a conflagration, the diverse peoples of Bosnia-Herzegovina claim to have learned a lesson about ethnic extremes.

Here, in the most integrated and complicated of Balkan republics, the three main nationalities feel they have made a success of the Yugoslav experiment where others failed.

Couples such as Azra and Ismet Pesic wave off politicians’ dire warnings of an impending explosion of conflict. In the gaudy green-and-yellow apartment house that the Bosnian Muslims share with Serbian and Croatian families, residents seem amused by reports they are about to be consumed by war.

“We’re just common people going about our business. There’s no problem here, except among the higher-ups,” insists Azra, who commiserates over thick Turkish coffee with Serbian neighbors from across the hall.

“My youngest is about to be called for his army service, but he knows better than to fight in such a stupid war,” says the salesclerk and mother of two. “My sons will never raise a gun against someone just because he’s a Serb or a Croat or a Muslim or a Jew. As their mother, I am sure of this.”

Tens of thousands of Serbian-led federal troops are deployed at potential flash points throughout Bosnia, with aircraft and heavy artillery positioned to back them up. But the peoples of Bosnia, having pulled back from several glances into the abyss of civil war, contend they can foil outside attempts to set them against each other.

“We have already experienced several peaks--crisis points at which everyone said Bosnia would explode, but it didn’t,” observes Kemal Kurspahic, editor of the Sarajevo daily Oslobodjenje. “I wouldn’t be so bold as to say the threat is over. There are still new fires being set under the Bosnian pot.

“But I think this republic is the best example that we in this part of the world--call it Yugoslavia if you want, although that name is somewhat outdated--that we not only can, but must, live in peace. When you live this close together, you cannot shoot at your neighbor without the bullet ricocheting into your own home.”

The Serb-Croat war that has claimed more than 10,000 lives has not spread to Bosnia, Kurspahic says, because the ethnic balance prevents any one group from dominating and abusing the others.

No single nationality claims a majority in Bosnia, where about 44% are Bosnian Muslims, 32% Serbs and 18% Croats. Many prefer to call themselves Yugoslavs, either because of mixed origin or loyalty to the dying idea of forging a single Balkan identity.

While a fever of divisiveness and nationalism absorbs Serbs and Croats in their respective republics, most here seem to recognize that ethnic borders cannot be drawn.

“We have 650,000 people from mixed marriages in this republic. This will be the army that protects us,” says Interior Minister Alija Delimustafic, who is responsible for police and security in the republic of 4.5 million.

Despite the professions of brotherhood and the fact of thorough integration in urban areas like Sarajevo, there is palpable fear in rural areas of the republic and in the corridors of power in this capital city.

“The citizens of this republic are armed,” warns Foreign Minister Haris Silajdzic, referring to reports that 2 million civilians here keep guns. “It is a sad fact that small groups of militants might be able to spark conflict, because the vast majority genuinely do not want war.”

Silajdzic worries that his republic is perceived by Belgrade and Zagreb as a potential solution to the Serb-Croat war, which is more a fight for control of territory than one based on ethnic hatred. If Serbia and Croatia carve up Bosnia between them, they could sate both appetites and call quits to their war. But such a solution would ignore the fate of the Muslims, and Bosnian President Alija Izetbegovic, a Muslim, has warned Serbs and Croats that it could be attempted only at their own peril.

The greatest threat to peace in Bosnia has been the Serbian community’s vow to revolt if the republic wins foreign recognition as an independent state. Serbian Democratic Party leader Radovan Karadzic warned last year that any attempt to sever the republic from Yugoslavia and Serbia would immediately trigger war.

But Muslim and Croatian officials jointly declared the republic sovereign in December, after the European Community made clear it was about to recognize the breakup of the Yugoslav federation as created in 1918. Despite the threatened Serbian uprising, a nervous peace has survived.

Similar warnings of revolt had been issued by Karadzic in the event that a referendum on independence were called by the republic’s Parliament. The legislature overrode Serbian objections in a tumultuous all-night session three weeks ago and set the public vote on secession for the end of this month.

“I think there will be no conflict in Bosnia-Herzegovina. There is no reason for conflict here,” says a contrite Karadzic, now pushing to resolve the republic’s political problems with what he calls the Switzerland model.

Like Bosnia-Herzegovina, Switzerland has three main nationalities--French, German and Italian--and its constitution guarantees equality with cultural autonomy in each canton. Government business is conducted in French in Geneva, for instance, while Italian is predominant in the south and German in the northern cantons.

Backpedaling from earlier insistence on continued union with the Serbian republic, Karadzic says Serbs in Bosnia would accept independence after a “period of transformation” and as long as equal rights are accorded to all nationalities and close ties are retained with the remnants of Yugoslavia.

There is also some doubt about the strength of Bosnian Serbs’ commitment to unity with Serbia and Serbs in Croatia--especially among the young.

“Serbs face some injustices in Croatia, but not because of the Croatian people--because of the government,” says Bilena Tadic, a 27-year-old Serbian court clerk with a Muslim boyfriend. “War won’t solve anything. Maybe it was unavoidable in Croatia because there is a lot of hatred among the older generations. But here, no one I know wants to fight.”

Karadzic still warns of the risk of communal violence but seems to have taken heed of the fate of fellow Serbian leaders in rebel areas of Croatia.

Serbian President Slobodan Milosevic waged a proxy war against Croatia by stirring revolt among Serbian communities there, and Karadzic seemed to be fighting for Milosevic’s dream of a Greater Serbia when he threatened Bosnia with ethnic war.

But Milosevic has abandoned Serbian rebels in Croatia and called for U.N. peacekeepers to end the war, which has become extremely unpopular in his own Serbian republic and threatens to force him from power.

“Karadzic is a practical man,” says Kurspahic, the newspaper editor. “He has strong support among Bosnian Serbs . . . but they are not ethnically compact, which would make it difficult to fight as there are no clear ethnic borders.”

The political leader of Croats in Bosnia, Stjepan Kljuic, seemed to give momentum to the drift toward a political solution when he joined the Muslims’ call last month for international recognition of “my Bosnian homeland.”

Kljuic has since mysteriously resigned from the leadership of the Croatian Democratic Union in Bosnia, raising speculation that militant Croats object to remaining part of the multi-ethnic republic and might seek to annex the areas where they are predominant to Croatia.

But the Serbian community had long been considered to pose the greatest potential for sparking armed confrontation, and Karadzic has suddenly begun singing the praises of Bosnia’s ethnic unity.

“If the Serbs want to sign the Swiss constitution today, we are all for it,” Silajdzic said on behalf of Bosnia’s Muslims. Then, in a joking reference to his republic’s miserable financial straits, he added: “My only objection is that we are not Switzerland.”

Profile of a Republic on the Brink

Name: Bosnia-Herzegovina

Capital: Sarajevo

Area: 19,741 square miles

Population: 4.5 million

Ethnic distribution: Bosnian Muslim 44%, Serbian 36%, Croatian 17%

Description: The republic consists of two parts. Bosnia, to the north, is a thickly forested mountain region. Herzegovina, to the south, is composed largely of rocky hills and flat, fertile farmland.

Roughly one-fifth of the people are farmers who produce citrus and vegetable crops. Mining and manufacturing are becoming more important to the economy, producing copper, iron, lead, steel, processed foods and textiles.

History: After centuries of regional struggle between the Turkish and the Austrian Hapsburg empires, the separate kingdoms of Bosnia and Herzegovina were annexed to Serbia on Oct. 26, l918, to become part of the Kingdom of Serbs, Croats and Slovenes. It was in Sarajevo that Gavrilo Princip, a Bosnian Serb student, assassinated the Austrian archduke Francis Ferdinand, triggering World War I.

During World War II, Bosnian and Herzegovinian soldiers fought German and Italian troops who occupied the kingdom. The area became one of the six republics of Yugoslavia when the monarchy was abolished and replaced by the Federal People’s Republic of Yugoslavia on Nov. 29, 1945.

During 1990 legislative elections, the Muslim Party of Democratic Action won 86 seats, the Serbian Democratic Party won 72 seats and the Croatian Democratic Union won 44 seats. The three formed a coalition government along with three smaller parties.

SOURCES: Political Handbook of the World 1991, Encyclopedia Britannica, Times’ wire services.