Serbia on Monday rejected a European Union-brokered plan to tackle the ethnic partition of its former province Kosovo, a move that could hurt Belgrade's hopes of starting membership talks with the bloc.
But the coalition government called for the "urgent" continuation of negotiations to reach an accord, with the EU set to consider this month whether to recommend the start of accession talks with Serbia.
Membership talks would mark a major milestone in Serbia's recovery from a decade of war and isolation under late strongman Slobodan Milosevic and provide a much- needed boost for its ailing economy, still the biggest in the former Yugoslavia.
The EU had set a Tuesday deadline for Kosovo and Serbia to accept the principles on the table after talks ended last week without result. Kosovo, which broke away from Serbia in a 1998-99 war and declared independence in 2008, had already said it was ready to sign the deal.
European Union (EU) foreign policy chief Catherine Ashton, who has mediated in negotiations between Serbia and Kosovo over the past six months, urged Belgrade to make a last push for a deal.
"I believe that all the elements for an agreement on northern Kosovo are on the table ... I regret the decision of the Serbian government to reject the proposals and call on them to make a last effort to reach an agreement, for the benefit of their people,'' she said in a statement.
Facing a potential backlash from hardliners and a warning from the influential Orthodox Church, Serbia balked, saying the offer fell far short of the broad autonomy it wants for a small Serb enclave of majority ethnic Albanian Kosovo.
"The government of Serbia calls for the urgent continuation of dialogue ... with the mediation of the EU in order to reach a lasting solution,'' the government said in a declaration read out by Prime Minister Ivica Dacic at a meeting of his cabinet.
"The government of Serbia cannot accept the proposed solution as it does not guarantee the safety and human rights of Serbs in Kosovo,'' he said.
The cabinet voted unanimously to adopt the declaration, which would be sent to Ashton.
Ashton is due to issue a progress report on the situation on April 16 that will likely decide whether the EU launches Serbia on the long path of accession talks this year.
Ashton had said an inconclusive 12-hour meeting last week between the leaders of Kosovo and Serbia would be the last.
But her statement on Monday appeared to suggest she would be prepared to host more talks if there was hope of an agreement.
"They [Serbia] need to come up with very clear ideas of what they want," an EU source said.
Neighboring Croatia, Serbia's wartime foe during the collapse of Yugoslavia, is set to become the EU's 28th member on July 1, but Belgrade's progress has long been hamstrung by its refusal to come to terms with Kosovo's secession.
The West wants Belgrade to cede its fragile hold on a northern, Serb-populated pocket of Kosovo, where ethnic Albanians are the 90-percent majority - an ethnic partition that frequently flares into violence and has frustrated NATO plans to cut back its now 6,000-strong Kosovo peacekeeping force.
In a major U-turn in policy, Serbia has offered to recognise the authority of the Pristina government over the entire territory of Kosovo, but wants broad autonomy for the 50,000 Serbs living in the north.
Full details of the EU-brokered proposal have not yet been made public, but Belgrade made clear it fell short of its demands, particularly that the north control its own police and judiciary.
Serbia lost control over Kosovo in 1999 when NATO launched 11 weeks of air strikes to halt the killing and expulsion of ethnic Albanians by Serbian forces waging a brutal counter-insurgency campaign under Milosevic.
Considered by many Serbs as the cradle of their nation and Orthodox Christian faith, the territory of 1.7 million people declared independence in 2008 and has been recognised by more than 90 countries, including the United States and 22 of the EU's 27 members.