By Matt Robinson and Aleksandar Vasovic
BELGRADE (Reuters) - Serbia said on Wednesday it faced tough decisions in the days ahead as the Balkan country weighs how far to give ground on its former Kosovo province in return for coveted talks on membership of the European Union.
The warning followed marathon but inconclusive talks in Brussels between the leaders of Serbia and Kosovo, their eighth encounter in almost as many months as the EU pushes to end the ethnic partition of Kosovo and set Serbia on the path to membership of the bloc.
The meeting broke up without result and EU foreign policy chief Catherine Ashton, the mediator, said it would be the last.
Ashton gave both sides a "few days" to consult and report back before she submits a progress report to the EU in mid-April that will decide whether Serbia can begin accession talks in June, a process that would drive reform and help lure investors to the biggest economy in the former Yugoslavia.
"Unfortunately, our worst fears for the (Kosovo) talks have come true," Marko Djuric, foreign policy adviser to Serbian President Tomislav Nikolic said after a meeting of Serbian leaders on their return from Brussels.
"In the coming days the state leadership will face incredibly difficult decisions, of which the public will be informed," he told reporters.
More than a decade since NATO went to war against Serbia to halt a wave of ethnic cleansing in Kosovo, Belgrade is under intense pressure from the West to relinquish its fragile hold on a small, Serb-populated pocket of its former province.
Kosovo declared independence in 2008 and has been recognized by more than 90 countries, including the United States and 22 of the EU's 27 members.
Ending the de facto partition between the Albanian majority and the Serb north is a key condition of Serbia's further progress towards membership of the EU.
SERBIA: "THIS ISN'T THE END"
The stand-off, which sometimes flares into violence, has frustrated NATO hopes of cutting back its now 6,000-strong peacekeeping force in Kosovo.
With Croatia about to become the second ex-Yugoslav republic to join the EU in July, the West wants to anchor Serbia in accession talks and cement stability in the region more than two decades since Yugoslavia unraveled in war.
Desperate for the economic boost of closer EU ties, Serbia has offered to recognize the authority of Thaci's government over the north, but wants autonomy for some 50,000 Serbs living there.
The offer marks a major shift in Belgrade's official policy, but Kosovo fears autonomy for the northern Serbs would only deepen the partition and leave the country ungovernable.
The talks are stuck on the powers the north would wield.
Ashton, in a statement issued overnight, said the gap between the two sides was "very narrow, but deep".
Kosovo Prime Minister Hashim Thaci, who has staked much political capital on taking control of the Serb north, mooted the possibility of another meeting next week, but did not say under whose auspices it might take place.
"I remain hopeful an agreement can be reached," he said.
His Serbian counterpart, Ivica Dacic, told reporters: "This isn't the end".
Analysts say failure to clinch EU accession talks could shatter Serbia's nine-month-old ruling coalition and force an early election, with the nationalist Serbian Progressive Party riding high in opinion polls.
It would also inflict more pain on the struggling Serbian economy, which contracted 1.7 percent in 2012.
Slovenia joined the EU in 2004. Montenegro, which left a state union with Serbia in 2006, has already begun accession talks and is next in line behind Croatia.
(Additional reporting by Adrian Croft in Brussels; Writing by Matt Robinson; editing by Mike Collett-White)