"We in Croatia, advocating true reconciliation, are constantly cooling down the game, talking about our good European wishes, but neighbours, i.e. President Nikolic, see the situation differently. Such statements certainly aren't conducive to good relations and reconciliation," Josipovic said on Croatian Radio.

He was commenting on Nikolic's statement in Kurir that after the Hague war crimes tribunal's recent acquittal of Croatian generals, one could not cooperate honestly, openly and cordially with a country that celebrated its crime, referring to the 1995 military offensive.

Josipovic said he almost could not believe that such statements came from a politician leading a country that wanted to be European.

Asked when he would meet with Nikolic, he said this would not make much sense after his latest messages.

The situation should be cooled down and there will be enough time for meetings when Nikolic changes his rhetoric, he said.

Josipovic said a serious step forward was made in Croatian-Serbian relations in the last couple of years and that it was a pity that Nikolic and some other Serbian officials were stopping this process with their statements and actions.

"If we can't make progress in those relations, and my expectation was to make process, let's at least not demolish what has been achieved. I hope there will be enough wisdom on both sides of the Danube to realise that good relations are a common interest."

Asked why the crimes committed after Operation Storm were insufficiently investigated, Josipovic said that was a serious mistake. "The first mistake was that the crimes were allowed. Some crimes you can't prevent but more should have been done towards prevention," he said, adding that the victims were Croatian citizens and that the houses set on fire were in Croatia and Croatia was now paying for their reconstruction.

"Croatia shouldn't have allowed the crimes at such a scale and when they happened, it was necessary to react immediately."

Josipovic also said Croatia should indemnify generals Ante Gotovina and Mladen Markac, recently acquitted by the Hague tribunal, because they were detained without grounds. He said they were certainly heroes of the Homeland War, although not the only ones.

Asked if the shareholders' agreement between the Croatian oil company INA and Hungary's MOL could be annulled if the conviction of former Prime Minister Ivo Sanader was upheld, Josipovic said it should be possible if the final verdict found that the agreement was the result of a criminal act.

The president went on to say that he was in favour of imposing a real estate tax. "There have to be taxes. Because of them, we enjoy free education, health care and pensions, and there is no welfare state without taxes," he said, but added that "a real welfare state sees to it that those who have more shoulder more of the burden."

Commenting on a ruling coalition crisis because of the real estate tax proposal, the president said it was a misunderstanding or problem that he was confident would be solved. He does not believe that there might be an early election.

As for a parliamentary committee report on an inspection of services involved in the monitoring of Security and Intelligence Agency staff, Josipovic said he was glad it was established that there had been no wrongdoing, adding that the law should be amended to introduce more control with regard to phone records.