BALKANS : Bosnian Serbs Likely to Spurn Peace Proposal : Weekend referendum is expected to result in rejection of a plan that would force rebels to give up some conquered territory.

Despite being isolated, demoralized and condemned, Bosnian Serbs are expected to flout the will of the outside world this weekend and vote overwhelmingly to reject a proposed peace plan.

The settlement formula that has already been spurned three times by the rebel leadership would give Bosnian Serb warlord Radovan Karadzic and his nationalist gunmen uncontested rule over half of this country and ostensibly stop a war that even its instigators in Serbia have tired of.

But following the same logic that has driven the insurgency, most Serbs living in the conquered and “ethnically cleansed” territory under the control of Karadzic forces are likely to heed his advice and vote “No.”

Fatalism, martyrdom and the uniquely Balkan inat --self-destructive spite--have combined to convince most of the estimated 700,000 residents of Serbian-occupied Bosnia-Herzegovina that they should press on with the flagging campaign to forge a Greater Serbia with territory seized from Bosnia and Croatia.

Bosnian Serb fighters have recently suffered their first territorial setbacks of the 28-month-old war, exposing erosion of their fighting spirit and a new vulnerability to offensives by the strengthening Bosnian government army.

The rebels also face an increasingly realistic prospect of seeing a U.N. arms embargo lifted from the Bosnian government as punishment for Bosnian Serb refusal to make any compromise in the name of peace. That would allow the Muslim-led Bosnian troops to import heavy weapons to balance the rebel arsenal supplied by nationalist patrons in Belgrade.

Even that support from the Serbian and Yugoslav capital is at stake in the Saturday and Sunday referendum: Belgrade authorities have purportedly cut off supplies to their Bosnian Serb proxies in a much-publicized effort to pressure the rebels into signing the peace plan.

Serbia and Montenegro, the two republics left in rump Yugoslavia, appear willing to settle for half of Bosnia, instead of the 70% the Serbs now hold, in return for getting severe U.N. economic sanctions lifted.

But Karadzic and his radical military chieftain, Gen. Ratko Mladic, have refused to heed the pressure from Belgrade, probably fearing that an end to the war could lead to their prosecution by a war-crimes tribunal.

Karadzic denounced the peace plan at a pre-election rally in the nationalist stronghold of Banja Luka as “tantamount to capitulation.” He argued that compromise on the issue of territory would dishonor the lives of Serbs who died in the land-grab.

Although Serbs constituted less than one-third of Bosnia’s prewar population, they claim at least two-thirds of its land on the argument that Bosnian Muslims, who made up 44% of the population, are really Serbs whose ancestors converted to Islam during the 500-year Turkish occupation of the Balkans.

Serbian President Slobodan Milosevic, who instigated the deadly Balkan conflict with his rallying cry of “all Serbs in one state,” initially sought to muffle the Bosnian Serbs’ defiant propaganda by blocking television transmissions. He appears to have relented, however, after concluding there was too little time to turn around public opinion before the referendum.

With rejection of the peace plan a virtual certainty, what remains unclear is the rebels’ strategy for the future.

As the Sarajevo government troops eat away at the territorial spoils of the rebels, the first signs of a Serb-versus-Serb power struggle have emerged.

Yugoslav President Zoran Lilic, a Milosevic ally, unleashed a scathing attack on Karadzic and his followers last weekend, accusing the rebel politicians of war crimes and rampant corruption.

Although the harsh remarks are judged by Western diplomats to be too little and too late to discredit Karadzic and convince Bosnian Serbs to support the peace plan, they may marginally dent the majority of “No” votes cast in the referendum.

The last internationally mediated settlement offer, drafted by former U.N. envoy Cyrus R. Vance and Lord Owen of the European Union, was rejected by a reported 96% of the Bosnian Serb population in a similar referendum in May, 1993.

A Nation Redivided

The areas held by Bosnia’s Serbs and Muslim-led government would be altered under a proposed peace plan. Shaded areas indicate Serbian control