The UN's highest court today exonerated Serbia of direct responsibility for the slaughter of 8,000 Bosnian Muslims at Srebrenica in 1995, but ruled that it failed to act to prevent the genocidal massacre.

In a long-awaited judgment, the International Court of Justice also ruled that Belgrade failed to comply with its international obligations to punish the Bosnian Serbs who committed the Srebrenica atrocity.

However, the judgment that Serbia was not directly responsible has caused huge disappointment within Bosnia, with the country's politicians reiterating their claims the Serbian Government had huge influence over the Bosnian Serb Army's actions during the 1990s conflict, and were responsible for its actions.

Plans for a huge Bosnian compensation lawsuit worth billions against the Serbian Government over the atrocity now look certain to collapse.

The Srebrenica massacre was a key flashpoint in the region's brutal communal conflict triggered by the break-up of Yugoslavia. In total, the 1992-95 war led to the deaths of 100,000 people.

In a lengthy ruling, the International Court of Justice said that the Serbian state did not order the massacre, but was responsible for failing to prevent it.

Judge Rosalyn Higgins, the president of the court, said: "The court finds that the acts of genocide at Srebrenica cannot be attributed to the respondent's (Serbia) state organs."

However, she added that Serbia "should have made the best effort within their power to try and prevent the tragic events then taking shape".

She said that it would have been clear in Belgrade that there was a serious risk of a massive slaughter in Srebrenica, but Serbia took no initiative to prevent what happened and appeared to have taken no action to avert the atrocities which were being committed.

The ruling added that Serbia’s claim that it was powerless to prevent the massacres "hardly tallies with their known influence over the Bosnian Serb army".

Judge Higgins also criticised Serbia for failing to take any action to bring to justice the perpetrators of the massacre. She specifically referred to General Ratko Mladic, the general who oversaw the Bosnian Serb onslaught, who along with Radovan Karadzic, the Bosnian Serbs' wartime president, is on the run with NATO forces failing to track either man down.

However, she confirmed that the ruling that Serbia was not directly responsible meant that Bosnia's bid of seeking compensation from the Serbian state for the atrocities was likely to fail.

"Financial compensation is not the appropriate form of reparation for the breach of the obligation to prevent genocide," she added.

Leading politicians in Bosnia, both Muslim and Croat, expressed deep disappointment with the verdict that Serbia was not directly responsible.

"I am sorry that Serbia and Montenegro were not convicted of genocide and that they were not convicted of conspiracy in genocide," Haris Silajzic, the Bosnian Presidency’s Muslim member, told Bosnian television.

Mr Silajdzic’s Croatian colleague, Zeljko Komsic, also condemned the judgment. "We who were in Bosnia know what happened here right from the beginning of the war and I know what I will teach my kids."

Relatives of those killed by the massacre also condemned the verdict. "This makes me cry. This is no verdict, no solution. This is disaster for our people," Fatija Suljic, 60, who lost her husband and three sons in the Srebrenica atrocity, told AP.

The Serbian Government, however, was more muted in its criticisms of the report.

Despite saying the verdict that Serbia did nothing to prevent the genocide was "difficult" to deal with, Boris Tadic, the Serbian President, hailed the fact that his country had been acquitted of genocide.

"For all of us, the very difficult part of the verdict is that Serbia did not do all it could to prevent genocide," Mr Tadic said.

He added that the Serbian Parliament should pass a motion condeming the massacre.

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