NEWS ANALYSIS : Stage Set for Serb-Against-Serb Civil War : Politics: Growing nationalism casts another shadow over entire region.

A palace coup in the Yugoslav capital of Belgrade and violent clashes between police and anti-regime demonstrators herald a dangerous strengthening of Serbian nationalism that could worsen ethnic conflicts throughout the Balkans.

Indeed, the political stage is set for a power struggle between Serbian President Slobodan Milosevic and a nationalist rival of his own making that holds the clear potential for a deadly Serb-against-Serb civil war.

Milosevic, whom the international community views as the chief instigator of the past two years of bloodshed in the former Yugoslav republics, has brazenly ousted the federal president for seeking to frustrate his quest for power and has used security forces against political foes.

The dismissal of Yugoslav President Dobrica Cosic and the beating of opposition leader Vuk Draskovic of the Serbian Renewal Party this week were designed to terrify into submission those who resent the social and economic chaos Milosevic has brought upon them.

Serbia, which is now allied only with tiny Montenegro in the shrunken Yugoslav federation, suffers runaway inflation of more than 10% per day and has been under severe U.N. sanctions for more than a year because of Belgrade’s role in fomenting violence in Croatia and Bosnia-Herzegovina.

Once a model of prosperity in the former Communist world, Yugoslavia--what is left of it--has lost at least half of its domestic wealth in the past two years, and most families are surviving on incomes worth only a few dollars per month.

By making Cosic the latest scapegoat for the disasters plaguing Serbia, Milosevic has once again evaded direct responsibility for his people’s suffering and tightened his grip on power.

The Yugoslav Parliament, dominated by Milosevic supporters and ultranationalists of the Serbian Radical Party, removed federal Prime Minister Milan Panic, a Southern California pharmaceuticals magnate, from office in similar fashion last December.

However, the maneuvering may have unintended consequences for Milosevic. The Radical Party is headed by suspected war criminal Vojislav Seselj. By twice relying on Seselj to serve as cover for his political maneuverings, Milosevic has increased the power of the ardent nationalist, who has lately emerged as a potentially dangerous rival.

Both men have played the nationalist card to gain and enhance their power. Both are now encouraging Bosnian Serbs to carry on with their deadly offensive in Bosnia; either could easily provoke an even bloodier conflict in Serbia’s explosive Kosovo province to distract the other’s armed forces.

Seselj leads the second most powerful faction in both the federal and Serbian parliaments, after Milosevic’s Serbian Socialist Party, and commands a paramilitary gang that has been accused of brutal acts of “ethnic cleansing” in Bosnia, where Serbian nationalists now control 70% of the republic.

Seselj gained ground against Milosevic last month when the Serbian president appeared to panic in the face of U.S. threats to use air power to rein him in. The threatened air strikes would have targeted Belgrade’s supply lines to the Bosnian Serbs and the heavy artillery encircling Sarajevo and daily laying waste to the Bosnian capital.

In reaction, Milosevic announced that he was cutting off support for the Bosnian Serbs when they refused to endorse a U.N.-backed peace plan. Seselj, on the other hand, traveled to rebel-held territory to assure his allies in Bosnia that he remained loyal to the war for an expanded Serbia that would unite all Serbs in the Balkans.

A swaggering, pot-bellied nationalist who has been known to brandish his pistol during public quarrels, Seselj dealt Milosevic one of the most embarrassing setbacks of his six-year rule when he torpedoed a pan-Serb gathering called by the president in mid-May. In protest against the Belgrade leadership’s flagging commitment to territorial expansion, he led a walkout of his fellow Radicals and of Serbs from Bosnia and Croatia.

Yet Seselj was originally Milosevic’s own creation. The Serbian president wanted the appearance of clean hands but needed a lieutenant who could neutralize democratic opponents. State-run Belgrade TV, which remains loyal to Milosevic, helped build up Seselj through almost nightly coverage. Milos Vasic, a respected analyst of the Serbian political scene and senior writer for the independent weekly Vreme, refers to Seselj as “Milosevic’s remote-control scarecrow.”

Recently, however, Belgrade television has paid little attention to the apparent rival.

Milosevic is thought to have firm control of the huge Serbian police and security forces as well as of sizable factions of the Yugoslav federal army. That would seem to allow him to contain Seselj’s smaller force, although an outright attack would probably trigger much worse unrest than the rioting that disrupted Belgrade on Wednesday.

One Serbian policeman was killed in the clashes that broke out between club-wielding police and those protesting Cosic’s ouster, and Draskovic was among 121 political activists arrested. The disturbances subsided Thursday, suggesting that there is still too little popular resolve among frightened moderates to confront the hard-liners holding power. And today, Draskovic’s lawyers said that a Belgrade magistrate court had indicted him on charges of seeking to overthrow the state, Reuters news agency reported.