Next Step : Sarajevo Trying to Reinvent Itself Amid Brief Peace : There are trams to ride but no money for fares and little water, light or heat.

Succumbing to the black humor that prevails in this battle-scarred city, Sarajevans have been convulsed by belly laughs on hearing a “gesture of unity” proposed by the Serb gunmen who encircle them:

The same nationalist rebels whose heavy artillery pounded this capital into rubble for two years have suggested sharing operation with the beleaguered cityfolk of a newly rebuilt tram network that serves only those trapped within the Serbian cordon.

Envious of the public conveyance that shuttles passengers along the length of government-controlled Sarajevo, rebel authorities want tram drivers from the multiethnic center to hand over the cars to Serb drivers at a front-line station so that service can be extended to “ethnically cleansed” suburbs.

The proposal, aired in a recent television broadcast, has been met with knee-slapping disbelief and kudos for the segregationists’ cheek. But the offer and the Sarajevans’ refusal to take it seriously illustrate the psychological impasse hampering reconstruction of this shattered and divided city.

Serb rebels insist on building parallel services within the territory they have conquered, while the Muslim-led government wants to restore the integrated transport and utility networks that existed before the war, as well as central authority over the carved-up capital.

But the reality of division and the hunger among civilians on both sides for some semblance of a normal life may bring about the very duplication of services that the Serbs have proposed, at least as a first step.

Up to now, both a U.N. umbrella organization and foreign governments with individual initiatives in Sarajevo are aiming to re-integrate the Serb-occupied areas with the rest of the capital, rather than creating separate facilities that would serve to reinforce its division.

“Technically, it only makes sense to rebuild over the divisions and not incorporate them,” said Robert Barnett, the newly arrived British charge d’affaires.

The divisions are deep, however. The Serb rebels control more than 70% of the aquifers supplying water to Sarajevo, giving them considerable clout and a virtual veto over efforts to rebuild the water network that existed before the siege.

The same applies to Serbian dominance over transportation and public utilities such as gas and electricity. The Serb rebel lines cut through Sarajevo’s elongated chain of neighborhoods flanking the Miljacka River and the utility distribution grids that serviced the city.

During the siege, as nationalist Serbs sought to pressure the multiethnic capital into surrender, they cinched off the gas supply, blew up water relay stations and sabotaged the flow of electricity where the conduits crossed their territory.

The government has repeatedly rejected their offers to restore services if it will capitulate to the current division of the city. As a result, residents are without a reliable supply of such basics as water, light and heat.

While Serbs living in the conquered areas of Sarajevo are as much in need of services as residents in the besieged center, foreigners involved in rebuilding the infrastructure warn that there is more at stake than self-interest.

“The government fears that any restoration done now will solidify the confrontation lines and the current zones of occupation,” said a Western diplomat. based here. “The Serbs would like that, as it would strengthen their political claims, but we want to be careful to avoid making the current political divisions permanent ones.”

In March, the U.N. Security Council appointed American diplomat William L. Eagleton as special coordinator for Sarajevo to work out plans for the capital’s reconstruction with the Bosnian government and “other relevant authorities.” The latter phrase clearly refers to the rogue Serb leadership in nearby Pale, which the Bosnian government refuses to consider an equal partner in the effort to rebuild structures torn apart by rebel shells.

Except for the proposal to share the trams, which no one in the government has dignified with a response, the secessionist Serbs have shown little interest in putting Sarajevo back together as a unified city.

Local government officials, for their part, remain highly skeptical that Sarajevo is peaceful enough or open enough to carry out effective reconstruction.

Serb heavy weaponry still rumbles at the periphery, the capital is still cut off by an armed blockade and there are fears the battle for Sarajevo is far from over.

“We don’t have free movement. This is the major limiting factor. We can’t even bring the materials we need for rebuilding into the city because we are still surrounded,” said Munever Imamovic, Bosnian minister for reconstruction, environment, transport and communications.

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Imamovic concedes that there have been remarkable changes in the capital since the majority shelling was halted by a NATO ultimatum in February. Residents stroll in the open after two years of huddling in cellars or dashing from building to building to dodge bullets and shrapnel.

Perhaps the most visible sign of improvement in the lives of Sarajevo’s 380,000 remaining residents was the restoration of tram service in early March, after shelling had been halted long enough for government workers to repair the cars and tracks damaged early in the siege.

But even that, Imamovic insists, is more a subsidized psychological boost than an indication that life in Sarajevo is returning to normal.

“It’s really just another kind of relief program. We cannot charge people to ride because no one has any money. Most of the passengers are not going to work, but to visit friends or check prices at the central market,” he said.

“Psychological moves are important. We had a soccer game a few weeks ago that really lifted spirits here. But when the same playing field was used later (as a helicopter landing site) to evacuate wounded from Gorazde, it reminded everyone that such symbolic improvements can quickly be reversed.”

Last month’s intense battle over the government-held eastern enclave of Gorazde dealt a serious setback to what had been an improving mood in Sarajevo. As Serb rebels retaliated for token NATO air strikes and a short-lived show of resolve by the U.N. Protection Force by taking peacekeepers hostage and seizing back weapons that had been used to attack Sarajevo, many Sarajevans worried that shelling of their city could resume.

That, in turn, has chased away any thoughts of private investment to repair Sarajevo’s blasted buildings and severed telecommunications.

“Everything is on hold for the moment, although we do hope the setbacks are only temporary,” said Barnett, who helped to put together an initial U.S.-British report that estimated the bill for infrastructure repairs at $125 million.

Eagleton, who began work in mid-April, concedes that much of his undertaking will depend on restoring enough stability to give outside investors confidence that their projects can be completed.

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Muhamed Zlatar, a former professor who coordinates local labor resources with the U.N. reconstruction team, exudes frustration over the latest effort by an indecisive world community to launch itself into the task of patching up war damage while the conflict rages on.

“There are a lot of reasons why the international community is getting involved in this way. Perhaps it is interest in business opportunities, but I think a bigger reason is guilt,” Zlatar said. “Nothing was done to stop the destruction, so there is a desire to help by those who feel something should have been done.”

Donations are essential for restoring basic utilities, he said. But the most pressing need in the capital is for new housing to replace the 87,000 dwellings heavily damaged or destroyed in shelling.

Among Eagleton’s tasks is coordination between the reconstruction planners and international lending agencies that ultimately will have to pass judgment on the viability and importance of costly projects for which donations cannot be expected--such as private housing.

“I would like to be an optimist, but to be honest, nobody is going to approve financing for new construction in a city still technically at war,” said Zlatar. “Right now, it would be like giving money to a drunk. . . . It would only be wasted. We will have to wait for everyone to sober up before the money will come here.”