SERB LEADER'S REVERSAL MET WITH CAUTION.

Byline: Chris Hedges The New York Times

President Slobodan Milosevic, abandoned in recent days by key supporters, unable to force his police or army to crush daily street protests after 77 days, and facing intense diplomatic pressure, announced Tuesday that he would reverse the decision that touched off the protests and restore opposition victories in local elections.

Milosevic's statement, delivered in a letter to Serbia's Parliament, was greeted cautiously by opposition leaders and foreign diplomats who have watched the remote, authoritarian ruler feign compromise in the past and then refuse to give up his iron grip on power.

They said, however, that it was the strongest indication to date that Milosevic had decided to end the standoff with tens of thousands of angry protesters who have gathered daily in Belgrade, the capital, and dozens of other towns and cities. The protests, the worst in Milosevic's nearly 10 years in power, were sparked by his decision to annul the Nov. 17 vote that gave the opposition a victory in 14 of Serbia's 19 largest cities, including Belgrade.

Opposition leaders, who saw sporadic incidents of beatings by riot police in the capital for the third night, warned that they would not call off the protests until the government loosened its grip on the news media, allowing it to cover the protest movement and give the opposition a voice. They also said they wanted other democratic reforms that would give them a chance to compete fairly in the fall presidential elections.

``The conditions for ending the protests, besides honoring the electoral results of November 17, include the prosecution of those responsible for stealing votes and beating people,'' said Zoran Djindjic, an opposition leader. ``There must also be a liberalization of the media.''

In Washington, the State Department also warned that the letter did not mean that the crisis was over or that the vote would be respected, saying that it greeted the news with ``a healthy degree of skepticism.''

The State Department spokesman, Nicholas Burns, said that if the letter meant that the election results would be honored, ``we welcome this as a first step forward in the right direction in Serbia.''

``However,'' he told reporters, ``we will remain skeptical until we see concrete actions by the Serbian government to implement the commitment made this morning.''

After Milosevic annulled the election results, citing unspecified ``irregularities,'' he found himself increasingly embattled and isolated, even within his own circle. Police and army commanders refused calls by hard-liners in the governing Socialist Party to crush the protests. Top officials, in statements that would have been unthinkable three months ago, called for the election results to be respected.