The western-leaning government of Bosnia's Serb republic resigned yesterday because of a ruling by an international arbitration panel not to award the disputed northern town of Brcko to the Bosnian Serb entity.
The resignation of the Prime Minister, Mr Milorad Dodik, and his caretaker government further deepened a political crisis in the country's Serb half, one of Bosnia's two autonomous entities.
It also represented a setback for western peace envoys who had supported him strongly in his power struggle against ultra-nationalist hardliners in recent months.
Earlier yesterday, the international peace co-ordinator, Mr Carlos Westendorp, removed the hardline Bosnian Serb President, Mr Nikola Poplasen, for obstructing the peace process.
Mr Poplasen and Mr Dodik are fierce political opponents.
After an emergency meeting of the government of the Republika Srpska, Mr Dodik told reporters he would step down for "moral reasons".
Mr Dodik, who came to power early last year after the ousting of hardliners, said the arbitrator in his decision had not recognised what the government had done for Brcko. "I feel responsible for this decision and that is why I resign."
Earlier yesterday, the arbitration tribunal chaired by Mr Roberts Owen, a US lawyer, ruled that Brcko would be made a self-governing neutral district under international supervision.
The panel opted for the district alternative instead of awarding the northern town on the border with Croatia to either of Bosnia's two entities: the Muslim-Croat federation and the Serb republic. Both had claimed Brcko.
Mr Westendorp removed Mr Poplasen because of his refusal to nominate Mr Dodik for another term in office after September's election. Mr Dodik's government has stayed on in a caretaker capacity.
Mr Poplasen said he would not accept his dismissal and said the people should decide on the issue in a referendum.
The parliamentary speaker, Mr Petar Djokic, called an emergency session of the Bosnian Serb parliament for tomorrow to debate the political situation.
His Socialist party, a member of the western-leaning Sloga coalition, sharply criticised the decision on Brcko as well as Mr Westendorp's dismissal of Mr Poplasen.
Bosnian Serb forces took control of the north-eastern town in 1992, driving out or killing its Croat and Muslim majority. Under the 1995 Dayton peace accords, the status of the town was to be determined by the international panel, which twice postponed its decision, fearing a flare-up in violence.
The US State Department issued a travel warning ahead of the decision, warning of threats against US citizens due to the "controversial and emotional nature of the Brcko issue".
Chris Stephen adds from Nekovce, Kosovo: Eleven Serb policemen were wounded yesterday in Kosovo after ethnic Albanian rebels attacked a troop convoy with rockets, the highest daily Serbian casualty figure of the 13-month-old war.
In one of the most ambitious assaults of the war, teams of rebels fired anti-tank rockets at police vehicles outside the town of Magura, 15 km west of the capital, Pristina.
Most of the wounded were clustered in one truck hit from behind by a rocket, with six left in a serious condition. The rebels escaped before police reinforcements arrived.
The battle coincided with a Serb tank assault on rebel positions at the hilltop village of Nekovce, where two guerrillas were wounded.
This attack came in the morning, when a battle group of approximately a dozen tanks and armoured vehicles deployed in driving wind and rain around the main east-west highway close to positions of the rebel Kosovo Liberation Army.
Volleys of tank shells were fired at the village, with the inhabitants running for shelter.
An international monitor sheltering from the rain in his orange jeep at the scene said: "The Serbs claim the KLA fired at them with small arms. In the spirit of community policing they fired back with main tank armament."