Allies Seek DMZ in Bid to Save Bihac : Bosnia: Serbian rebels advance on Muslim town; takeover could widen war. 250 U.N. peacekeepers held hostage. NATO could use air strikes to enforce weapon, troop ban.

The United States and its European allies moved Thursday toward declaring the strategically important Bosnian town of Bihac a demilitarized zone in a last-ditch effort to prevent it from falling to rebel Serb troops.

The action came at a high-level meeting of the North Atlantic Treaty Organization in Brussels as Serbian forces began moving into outlying areas of the largely Muslim town, climaxing a two-week siege.

At the same time, in a further defiance of the West, Bosnian Serb troops surrounded and effectively took hostage about 250 French and Canadian U.N. peacekeeping troops at six locations around Bosnia-Herzegovina.

Serbian nationalist leaders have warned they will stage an “all-out war” if the Western allies continue to try to impede their advance on Bihac. U.N. and Serbian envoys negotiated Thursday in a thus-far unsuccessful effort to work out a truce.

The NATO action took the form of an agreement to use air power to enforce a demilitarized zone if the United Nations uses its authority to declare one. Western sources said they expect U.N. officials in New York and Croatia to announce such a step today.

The decision by NATO essentially embraced a proposal that the Clinton Administration has been pressing for days. Until Thursday, however, the allies had resisted, fearing Serbian reprisals against European U.N. troops.

Bihac is regarded as crucial because a takeover of the town by Serbian nationalists is considered likely to prompt the Bosnian government to pull out of negotiations for a permanent peace accord and could widen the war.

Croatia, which borders the Bihac area and has a large ethnic Serb minority of its own, has hinted that fighting might well break out in its own territory if Bihac is lost to the Bosnian Serb troops.

The vote in NATO on Thursday, which followed a nine-hour meeting that was interrupted by telephone conferences with U.N. officials, was essentially an agreement in principle to use NATO air power to help enforce a demilitarized zone.

Thus far in the 2 1/2-year-old Bosnian civil war, however, U.N. leaders have hesitated to approve NATO air strikes, for fear of Serbian reprisals against the U.N. peacekeeping troops--most from Europe and none from the United States--on the ground in the war-ravaged country.

Besides paving the way for establishment of the demilitarized area, NATO’s policy-setting North Atlantic Council also voted to extend the “no-fly zone” over Bosnia about four miles north into neighboring Croatia.

The move was designed to enable NATO warplanes to prevent the Serbs from using airfields in Croatia as staging areas for bombing raids against Bihac, as they had until Monday, when NATO jets bombed Serbian runways there.

Details of the so-called “weapons-exclusion zone,” as such arrangements are called in Bosnia, were left to be hammered out by officials of the U.N. Protection Force in Bosnia, which controls U.N. peacekeeping troops.

However, Western officials said the zone includes an area within a two-mile radius of Bihac’s center, with the addition of a section to the north that contains a large Muslim population.

Under the terms of the allied dictum, both sides--the Bosnian Serbs and the largely Muslim Bosnian government--would have to keep their troops, tanks and artillery out of the weapons-exclusion zone or risk attack by NATO warplanes.

The United Nations and NATO have already set up similar zones around Sarajevo, Bosnia’s capital, and Gorazde, a major city. The restrictions in Sarajevo, however, apply only to heavy weapons and not to ground troops.

Thursday’s action by NATO marks the most sweeping warning that the allies have given the Serbs in connection with the siege against Bihac, which has been intensifying since early November, when Muslim forces began recapturing some Serb-held territory in the area.

On Monday and Wednesday, squadrons of NATO warplanes launched air strikes against Serbian targets--including an airfield in Croatia from which Serbian aircraft had been bombing Bihac--but the attacks were largely symbolic.

European governments have been reluctant to take more aggressive action for fear that rebel Serb leaders would retaliate and attack French, British, Dutch and Canadian peacekeeping troops, who are only lightly armed.

The Europeans have warned that if their own ground troops are attacked, they will expect the United States to send U.S. forces in to help rescue them, as President Clinton has promised.

The United States had initially proposed an exclusion zone with a six-mile radius, but the allies rejected that as too provocative. Two miles, they said, would more than cover the town.

However, the Europeans began to have second thoughts after Serbian nationalists troops finally started closing in on Bihac. They now are reported likely to back the U.S. plan, albeit reluctantly.

Along with the promise to enforce a demilitarized zone, NATO officials also condemned the recent Serbian attacks on Bihac and urged all sides to continue their diplomatic efforts to work out a truce.

Yasushi Akashi, the chief U.N. envoy in the former Yugoslav federation, said Thursday that he had worked out a possible cease-fire in talks with Serbian leaders in Belgrade, but local Serbian nationalists had not yet accepted the deal.

Despite the cumbersome procedure involved in Thursday’s NATO action, spokesmen for the organization left no doubt that the allies were alarmed by the continuing rebel Serb threat to Bihac.

Jamie Shea, NATO’s chief spokesman, told reporters at a briefing that the alliance had been “extremely preoccupied” by the deterioration of the situation there and stood ready “to use its air power” to protect the city.

Allied officials said creation of a demilitarized zone around Bihac would be done under existing U.N. authority and would not require approval of another resolution by the U.N. Security Council.

However, they said Security Council approval would be required to extend the “no-fly zone” into Croatia--a move that could run into opposition from Russia, which is one of the five permanent members of the council and has veto power.

Moscow has already raised objections to Wednesday’s NATO air attack on Serb-controlled missile sites, contending that military action by the West could only lead to “prolonged bloodshed” in the region.

Willy Claes, NATO’s secretary general, said Thursday that the West had no desire to get into a war, but he said Wednesday’s action had come under authority of a previous U.N. resolution, which Russia had backed.

Thursday’s push by Serbian nationalist forces surrounding Bihac effectively trapped thousands of civilians in the town. Fighting also flared in Sarajevo as Bosnian Serb forces shelled the capital.

There was no immediate indication when the Serbs might free the 250 French and Canadian peacekeeping troops whom they had detained. U.N. officials said the peacekeepers had not been harmed.

Times staff writer Pine reported from Washington and staff researcher Maelcamp from Brussels.