"Croatia and Serbia have outstanding issues, but this and similar agreements will help resolve them," Sutanovac told press after the signing.

Vukelic said Croatia had signed such agreements with all neighbouring countries and that he did not expect criticism from the domestic public, "as this is a step forward in the normalisation of relations and the stabilisation of the region".

The agreement regulates cooperation between the two militaries in education, personnel exchange, and the military industry.

Both ministers underlined that the Croatian and Serbian military sectors were complementary and that they could jointly appear on third markets.

Sutanovac said the Serbian military industry had achieved impressive results over the past three years and that this summer he would sign a US$ 1 billion agreement.

The two ministers talked about Croatia's experience in peace missions, with Sutanovac assessing that Croatia was the regional leader in this respect.

Serbia has troops in Liberia, Chad, Cote d'Ivoire and Congo, and plans to send them to Lebanon and Cyprus by the end of the year.

Sutanovac thanked Vukelic for the participation of Croatian troops in the peace mission in Kosovo, saying it was imperative. "In this way Croatia is contributing to regional stability ... We wouldn't want you to downsize the troops."

He said the Serbian army was undergoing professionalisation and that by the end of the year it would have 36,000 troops capable of participating in a number of peace missions.

Asked about Serbia's possible accession to NATO, Sutanovac said membership of the Partnership for Peace, one of the stops on the road to NATO accession, was enough for now. "That's a sufficient framework of cooperation with NATO," he said.