Clinton Sees Real Chance for Bosnia : Balkans: He credits military muscle, diplomacy for giving best hope of ending war. But optimism over this week’s peace talks is cooled by discovery of mass grave.

With all factions in the brutal ethnic war in Bosnia-Herzegovina looking toward potentially pivotal negotiations this week at the United Nations, President Clinton said Saturday that chances for peace in the region are better now than at any time since the disintegration of the Yugoslav federation.

The President’s upbeat assessment reflected the strong possibility that a new military equilibrium in the complex conflict could encourage all sides to consider a negotiated settlement.

The hope for peace contrasted sharply, however, with reports that government forces had unearthed 540 bodies in a mass grave in northwestern Bosnia. The discovery, revealed Saturday by Bosnian Prime Minister Haris Silajdzic, served to symbolize anew the cruelty of Europe’s bloodiest war in half a century.

Although it was unclear precisely who had been buried in the grave, Silajdzic said the bodies were those of Muslims and Croats killed by Bosnian Serbs. The discovery coincided with word that the Serbs had expelled nearly 500 Muslims from a Serb-held town under government attack.

Although reports of Serbian atrocities have become commonplace in the 3 1/2-year war, they remain a chief concern for the Bosnian government as it decides whether to go along with a U.S.-brokered plan to end the fighting.

Negotiations designed to achieve a settlement are set to resume in New York on Tuesday. The foreign ministers of Bosnia, Croatia and the Serb-dominated rump Yugoslavia will attend, as will high-level representatives of the five-nation Contact Group that has been trying to forge an accord: Secretary of State Warren Christopher and the foreign ministers of Britain, France, Germany and Russia.

They will attempt to cobble together an agreement that would formally preserve Bosnia as a single country while ceding control of almost half its territory to the rebel Serbs. Although the Bosnian Serbs are not a party to the New York talks, they have authorized the Yugoslav government to negotiate on their behalf.

“Thanks to the combination of military muscle and diplomatic determination, there is now a real chance for peace in Bosnia,” Clinton said in his weekly radio address. “We must seize it.”

The United States and its Contact Group associates have been trying for more than a year to persuade the warring factions to go along with a partition plan that would give 51% of Bosnian territory to the Muslim-led but secular government and its Bosnian Croat allies and 49% to the Bosnian Serbs. The government and the Croats accepted the plan almost at once, but the Serbs, who once controlled more than 70% of the country, refused.

Now, after a strong Bosnian-Croat offensive has resulted in some territorial losses for the Serbs, the Contact Group’s apportionment plan suddenly appears more realistic. The U.N. command, which is overseeing peacekeeping in the region, produced a new map Saturday showing that the Muslims and Croats hold 50.8% of the country compared to 49.2% for the Serbs.

Signs are increasing that the Serbs are ready to settle for the 49% share. A senior rebel leader, Nikola Koljevic, was quoted on Bosnian Serb radio Saturday as saying that an initial peace deal could be reached at the U.N. meeting and a final settlement completed in two or three weeks.

In another indication of a growing momentum for peace, Serbs and Croats on Saturday exchanged 201 prisoners in northern Bosnia.

And in Sarajevo, the Bosnian capital, Director J. Brian Atwood and other officials of the U.S. Agency for International Development assessed aid projects that the United States and the European Union could undertake to rebuild Bosnia once the war ends.

But nothing is ever simple in the Balkans. Although the government and the Croats long ago agreed to accept 51% of Bosnia, Prime Minister Silajdzic told reporters in Zagreb, the Croatian capital, that the government army may renew the offensive that it halted a few days ago if the peace talks do not produce quick results.

“The 51-49 plan is a peace plan, on the diplomatic front,” he said. “Military operations are something completely different. Liberation of our country is the army’s duty until peace is achieved.”

If the Bosnian army expands the government’s holdings much, it could unbalance the diplomatic effort. The newly discovered mass grave near Krasulje, about 90 miles northwest of Sarajevo, also could upset the negotiations if it provides fresh evidence of Bosnian Serb atrocities.

Silajdzic told reporters that the grave appeared to be about 3 years old and was discovered by government troops who pushed the Serbs out of Krasulje.

Mass graves are “a grim reality that we will be facing while liberating Bosnia-Herzegovina,” Silajdzic told the Associated Press.

While Washington’s top peace envoy in the Balkans, Richard Holbrooke, prepared for Tuesday’s meeting at the United Nations, two of his aides, legal adviser Roberts Owen and diplomat Christopher Hill, were in Belgrade for meetings with Bosnian Serb officials. Rebel leader Radovan Karadzic traveled to the Yugoslav capital to participate in the talks.

A senior White House official said Owen and Hill probably will also visit Zagreb and Sarajevo before the talks get under way at the United Nations.

Although peace is far from a fait accompli in Bosnia, developments in the past two months have gone a long way toward polishing the Clinton Administration’s tarnished image in foreign policy. After years of groping to find the moral high ground while avoiding any sort of direct involvement, the U.S. government has pushed to the front of Bosnia diplomacy.

Clinton has eagerly sought to claim credit for his policy’s successes and, at the same time, has suggested that the Republican-controlled Congress could undermine American leadership by cutting the budget for diplomatic activities or imposing restrictions on the use of U.S. troops in a North Atlantic Treaty Organization force to supervise a peace agreement if one is signed.

“In the new and changing world we live in, America is the one country that can always make a difference,” Clinton said. “But if we want to continue to make a difference, if we want to continue to lead, we must have the resources that leadership requires. We must not let our foreign policy and America’s place in the world fall victim to partisan politics or petty fights.”