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CROATIA CLAIMS WIN AFTER SERB PUSHES FOR PEACE

Croats claimed a new battlefield victory over rebel Serbs Friday, hours after the Serbian leader widely blamed for instigating the war in the former Yugoslavia urged all sides to seek peace.

Serbian leader Slobodan Milosevic wrapped up a second round of talks Friday with U.S. Assistant Secretary of State Richard Holbrooke. Holbrooke then flew to Croatia and planned to continue on to Bosnia - the two countries where Milosevic's nationalist rhetoric four years ago sparked Serb rebellions.While diplomacy advanced slowly, troops were on the move.

Croatian radio reported Friday that Croatian forces captured the town of Drvar, across the border in western Bosnia. The radio said the rebel Serbs suffered heavy casualties. The Serbs denied the report.

In Zagreb, the Croatian capital, U.N. spokesman Chris Gunness said the report of Drvar falling is "very likely to be true . . . since we assessed the town has been surrounded by the Croats in the last 24 hours."

The fall of Drvar would put the Croats within striking distance of Bosanski Petrovac, the last Serb-held town in western Bosnia.

Gen. Milan Gvero, deputy commander of the Bosnian Serb army, said the positions of his forces were "strong, stable and unchanged."

"Reports about the fall of Drvar are tendentious and completely false," Gvero was quoted as saying by the Bosnian Serb news agency SRNA.

Later, a Bosnian Serb military statement denied the town had fallen but admitted that Bosanski Petrovac had come under Croat artillery fire for the first time. Three civilians were killed and seven injured, SRNA said. There was no independent confirmation.

In Croatia, as many as 10,000 Croatian troops were massing near the medieval town of Dubrovnik on the southern Adriatic coast, U.N. officials said. The town is a likely staging ground for another offensive against Serbs across the border.

"The situation is extremely tense," Gunness said. "We believe the offensive actions could be launched within days."

The Croatian and Muslim-led Bosnian governments had been entrenched in largely separate wars against Serb rebels. But the boundaries of fighting have been increasingly blurred since the two forged a military alliance this summer against their common foe.

Croatian forces routed Serbs in southern Croatia earlier this month and have crossed into Bosnia to help the government army there push the rebels farther from the border.