BRITAIN is preparing to confront Yugoslavia at the highest level next week over new and irrefutable evidence that Belgrade has been secretly selling crucial military technology to Saddam Hussein.

Officials said last night that the arms threatened the lives of British soldiers in the impending war with Iraq, and the revelations have enraged London and Washington. The two Governments consider Yugoslavia’s breaches so serious that it risks regaining the pariah status that it endured before the 2000 revolution that overthrew President Milosevic.

The showdown will take place on Tuesday when Jack Straw, the Foreign Secretary, flies to Belgrade to demand that President Kostunica stamp out an illegal arms trade that has supplied sophisticated weapons not only to Iraq, but also to Liberia, Libya and possibly Burma. The Bush Administration has sent Belgrade a letter containing similiar demands. “This is a very serious problem,” a senior British official said. “They (the Yugoslav authorities) have not responded adequately. We will make it clear that we expect this trade to be investigated and stopped.”

The crisis, compounded by Belgrade’s continued refusal to hand over indicted war criminals such as General Ratko Mladic, is the most serious diplomatic clash since the fall of Slobodan Milosevic. At risk is millions of pounds of Western assistance to Belgrade and its pending membership of Nato’s Partnership for Peace programme.

Over the past two weeks arrests and seizures across the former Yugoslavia have revealed that Serb military experts have been helping Baghdad upgrade aircraft, supplying rocket fuel for Iraqi Scud missiles, and transferring technology for guidance systems.

British sources told The Times that the relationship went far deeper than has so far been acknowledged and could also include help to beef up Iraq’s anti-aircraft capability. “I suspect that there is more (co-operation),” one source said.

“Since the Gulf War a decade ago the Iraqis have not succeeded in shooting down a single allied (USAF or RAF) aircraft. During the war in Bosnia we lost a Harrier, the French lost a Mirage, and the Americans had an F16 shot down. During the Kosovo campaign the Serbs also downed a US Stealth fighter. It goes to show the level of sophistication they (the Serbs) have. This is obviously an area that we are most concerned about.”

Sources in Belgrade said that co-operation with Iraq may have included television guidance systems for the SA2 and SA6 surface-to-air missiles, used against Nato aircraft in the Balkans.

The illegal arms trade was exposed two weeks ago when Nato troops stormed the offices of the Orao (Eagle) company, a Bosnian-Serb jet engine plant in Bijeljina. Among the documents seized was a letter from the Baghdad office of Yugoimport, Yugoslavia’s state-owned arms export company, regarding a £6 million deal for the overhaul of Iraqi MiG21 and MiG23 jet fighters by Serb technicians. The documents also instructed the Iraqis on how to conceal the shipments from inspectors.

Five Bosnian Serb officials, including the Defence Minister and army chief, were forced to resign. However, British officials are convinced that Belgrade instigated this deal and many more to Iraq and other countries banned by the UN from buying weapons.

A week later the Croatian authorities, acting on a tip-off from US Intelligence, seized the cargo ship Boka Star after she sailed from the Montenegran port of Bar with a shipment of “active coal”. They found 209 tonnes of nitrocellulose propellant and nitroglycerin, compounds that could be used to make solid rocket fuel for Iraqi Scud missiles.

The revelations prompted Belgrade this week to confess the illegal trade. Six senior officials were sacked, including General Jovan Cekovic, the veteran director of Yugoimport, and Ivan Djokic, the Deputy Defence Minister. The Yugoimport office in Baghdad was shut down and Belgrade has launched an inquiry.

However, there were grave doubts about the Government’s ability or willingness to stamp out the illegal arms trade, particularly since the military and intelligence establishment is still dominated by officers loyal to the former Milosevic regime. Part of the difficulty is the weakness of the Government in Belgrade, where Mr Kostunica, a moderate Serb nationalist, is in a power struggle with Zoran Djinjic, the Serb Prime Minister.

Western diplomats are also concerned about more subtle forms of military help. At least two senior University of Belgrade professors have admitted instructing Iraq on missile guidance systems. Djordje Blagojevic, who teaches aerodynamics, told Blic newspaper that he taught in Baghdad last spring. Another professor said that the department was working on the development of a cruise missile with a 900-mile range. Among the students are 30 Libyans scientists.

It is precisely this weapon that Washington protested to Belgrade about in a confidential letter. It accused Serb experts of helping Colonel Gaddafi, of Libya, to acquire a missile capable of hitting Israel in contravention of an international agreement banning the proliferation of missile technology.

Iraq and Libya are not the only countries accused of importing Serb military equipment illegally. Yesterday Zoran Zivkovic, the Yugoslav Interior Minister, confirmed that arms had been delivered to President Taylor, the Liberian leader whose country is under a UN arms embargo.

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