Corruption, weak institutions and ethnic tensions continue to hamper reform efforts across the Western Balkans, with European Union membership by no means assured for any state in the region, the top EU enlargement official said Tuesday.

But Serbia's recent cooperation with war crimes investigators is to be rewarded with the initialling of a deal that could pave the way to eventual membership, he added.

Serbia has "improved both in the search for fugitives and the access to archives and documents ... Therefore, I have decided to initial a stabilisation and association agreement (SAA) with Serbia tomorrow," EU Enlargement Commissioner Olli Rehn said.

But corruption in the country remains widespread, and ethnic tensions still exist, he added.

Serbia has long been the most contentious would-be member in the Balkans, with EU leaders repeatedly saying that it could only sign an SAA - seen as the precursor to becoming a full candidate - if top Serb war crimes suspects were handed over to the International Criminal Tribunal for the Former Yugoslavia (ICTY) in the Hague.

In October, ICTY top prosecutor, Carla Del Ponte, said Serbia had shown a renewed political will to cooperate with the tribunal and a new determination in putting that will into action.

Rehn decided to initial the SAA on that basis, but he stressed that it could not be signed until cooperation was further improved.

"ICTY cooperation cannot be a stop-start process. More still needs to be done to reach full cooperation, which remains the necessary condition for the signature of the SAA," he said.

Such cooperation should lead to the arrest and transfer to the ICTY of the two top fugitives, Ratko Mladic and Radovan Karadzic, he added.

Serbian Prime Minister Vojislav Kostunica gave a cautious welcome to the decision.

"After the initialling, it is important to realize the signing of the agreement as soon as possible, because that is an important signal for an influx of new investments, for the development of our industry, for creating new jobs - which all leads to a better standard for Serbian citizens," Kostunica said.

He added that the Serbian government is showing that it can "successfully lead European integration," which is one of the government's programme priorities, and "defend its territorial integrity and sovereignty" through the negotiation process for the future status of Kosovo, as well.

On Tuesday, Rehn presented his annual reports on the performance of the countries which have become or would like to become candidates for EU accession - Turkey, Albania and the states of the former Yugoslavia.

Croatia and Turkey are the only states in the group of seven to have attained full candidate status, but not even they can be certain of entry unless they strengthen key reforms, Rehn said.

Croatia is a "benchmark" for the region, which "demonstrates that the EU perspective is real and tangible," he said. Even so, it will only become the EU's 28th member if it "maintains the necessary reform momentum and meets the conditions," his report pointed out.

Many observers had predicted that Croatia could join the EU in 2009, but a recent dispute over access to Adriatic fishing grounds and continued concerns over widespread corruption have threatened to derail that process.

For the other states of the former Yugoslavia, EU membership remains a distant hope. Macedonia hit the headlines in September when members of parliament started a brawl which spilled over into the streets.

"The dialogue between all parties within the parliament needs to be conducted in a peaceful and constructive manner," the EU report said drily before pointing out that "corruption remains widespread" and "the country still faces major shortcomings in implementing and effectively enforcing legislation."

In Bosnia-Herzegovina, meanwhile, attempts to move towards the EU have been stalled by a failure to create a genuine national police force out of the country's two ethnically-divided forces.

"Lack of progress on this and other important issues is seriously delaying the conclusion" of an SAA drawn up in 2006, the report said.

Bosnia's southern neighbour, Montenegro, signed an SAA with the EU only three weeks ago. However, yet again the report pointed out that "corruption is widespread" and that "major" economic reforms are needed.

Albania came in for similar comments, with the report saying that "democratic culture, and in particular constructive dialogue between parties, needs to be developed" and "corruption remains widespread." 

And the Serbian province of Kosovo, under international administration since the bloody ethnic war of 1999, remains dominated by the ongoing dispute over its future status, with corruption and ethnic tensions still high, the report said.

Rehn called on Serbia to play a positive role in the Kosovo dispute, saying that the EU expects both Serbia and Kosovo's pro- independence leaders to "be more creative and constructive."