BELGRADE `PEACE' REJECTED.

Byline: Steven Erlanger The New York Times

The Yugoslav government asserted Thursday that ``peace has been restored in Kosovo,'' declared an end to its military offensive and urged all refugees to return home while new political arrangements are negotiated for the province. NATO dismissed the statements and said its bombing campaign would continue.

The government announcement said that under an accord between President Slobodan Milosevic and the pacifist ethnic Albanian leader, Ibrahim Rugova, ``a process of return of displaced persons from Kosovo, predominantly of Albanian nationality, has been initiated.'' Rugova is reported to be in the Kosovo capital, Pristina, under Serbian police protection, but it is not clear under what conditions.

The announcement appealed to all citizens of Kosovo to remain home or to return there, and ``to live together and cooperate.''

The government, which announced a unilateral cease-fire Tuesday, called on NATO to stop the bombing, saying, ``Clearly, NATO's criminal activities are aimed against all those who strive for a joint life, peace, unity and understanding.''

Spokesmen for NATO and the United States quickly derided the declaration as double-speak and propaganda. P.J. Crowley, a White House spokesman, called the declaration part of Milosevic's ``charm offensive,'' and said, ``Words and propaganda are not enough.''

Responding as they had to Milosevic's cease-fire call, NATO officials vowed to continue their bombing war against Yugoslavia. The alliance has declared that the price for an end to the bombing is for Milosevic to grant full political autonomy to Kosovo, withdraw the vast part of his forces and allow foreign troops to police the agreement.

With reporters barred from Kosovo and most of Serbia, it has been difficult to assess either the effectiveness of the NATO bombing, or the veracity of Milosevic's claims.

Even the whereabouts of the tens of thousands of Albanians who were turned back at the Albanian and Macedonian borders, which were unexpectedly sealed by the Serbs, remain unknown Thursday.

From all available indications, the bombing has done substantial damage to Yugoslavia's infrastructure and its military. But it is having no evident effect on Milosevic's refusal to capitulate to earlier alliance demands that he allow 30,000 NATO peacekeepers into Kosovo, and popular support for Serbia's stand against NATO still seems strong.

Thursday night, for instance, residents of the Serbian city of Novi Sad gathered again on their one remaining bridge across the Danube River, thus putting their lives at risk if NATO was to bomb it. Two other bridges in Novi Sad have been demolished by allied bombs. Residents of Belgrade have similarly gathered on their bridges.

Crowley and other Western diplomats said they expected Milosevic to try to stop the bombing once he had largely completed his military offensive against the insurgent Kosovo Liberation Army, which Belgrade terms ``terrorists and separatists.''

NATO said earlier in the day that Yugoslav forces appeared to be continuing their offensive in Kosovo, laying mines and continuing to attack dwindling rebel strongholds, while claiming that the Kosovo Liberation Army was doing its best to fight back with NATO air support.

The alliance, for its part, has said Rugova is under duress and is not acting freely in his dealings with Milosevic.

But Russia, which Washington has asked to explore a diplomatic solution with Milosevic, has already urged the West to build on the Yugoslav cease-fire, stop the bombing and begin new negotiations for a lasting settlement. And Russian officials insist that Rugova is acting as a peacemaker, not a puppet or quisling.

Milosevic is probably prepared to accept the essence of the Western-drafted peace plan for Kosovo negotiated at Rambouillet, France, so long as the issue of foreign troops can be fudged. While Washington had demanded a NATO-led force of 30,000 troops to enter Kosovo for three years, the Serbs might accept a smaller force under the rubric, at least, of the United Nations or the Organization for Security and Cooperation in Europe, where Russia is a full member.

Milosevic, some Western diplomats believe, is counting on the desire in the alliance to end this war before NATO's 50th anniversary celebration in Washington on April 24 and before public pressure to put ground troops into Kosovo becomes too strong.

It will not be difficult for Milosevic, with his tightly controlled media, to declare some form of victory, even in partial defeat. But that task might be harder for NATO, which must be seen to ``win'' its first war against a sovereign nation to maintain its credibility.

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PHOTO Kosovar refugees arrive Thursday in Switzerland, where they have relatives.

Markus Stuecklin/Associated Press