WASHINGTON (Reuters) - The United States said it was preparing a blanket embargo on exports to Serbia as the pace of diplomatic efforts to end the Yugoslav conflict appeared to quicken Tuesday.

``We are now working through the amendment to the export administration regulations that are pending -- which would establish a comprehensive embargo on exports and re-exports to Serbia of all goods,'' State Department spokesman James Rubin said.

The revised trade rules are the legal means the Clinton Administration will use to apply expanded economic sanctions, including an oil embargo, against Yugoslavia that NATO approved at its 50th anniversary summit over the weekend.

As NATO bombed for a 35th day, its supreme commander General Wesley Clark said in Brussels the alliance was cutting off the supply of oil to Yugoslavia from Montenegro and the supply of military equipment and fuel to Serb forces in Kosovo.

Clark said that, as part of the alliance's effort to isolate Yugoslavia, several key eastern European states -- notably Croatia, Hungary and Romania -- had stopped the flow of oil through pipelines to Yugoslavia.

``Prior to these actions, two to three ships per day left to Bar harbor. Now we're seeing 10 ships a day in port, almost exclusively tankers, offloading 24 hours a day,'' he said.

Clark said NATO was attacking roads, bridges and railways leading into Kosovo and out of Montenegro to deprive Yugoslav forces of the supplies they needed to operate.

U.S. Deputy Secretary of State Strobe Talbott, fresh from talks in Moscow, briefed German leaders in Berlin on his efforts to end the conflict.

U.N. Secretary-General Kofi Annan, on a largely ceremonial visit to Germany since Sunday, was expected to meet Talbott early Wednesday before meeting Chancellor Gerhard Schroeder and then heading off on a scheduled trip to Moscow himself.

Russian Balkans envoy Viktor Chernomyrdin said concessions he brought from Belgrade last week were unlikely to satisfy NATO immediately and halt air strikes but left room for more talks.

``(Yugoslav President Slobodan) Milosevic has agreed to international presence in Kosovo under U.N. auspices, only from those countries that it names and with Russia's big participation,'' Chernomyrdin, who met Talbott earlier in the day, told Russian television.

Talbott said after meeting Chernomyrdin that the United States and Russia would work together to resolve the Kosovo crisis.

``The problem is extremely complicated. It is important that our urgent work continues and it will continue in the days to come,'' said Talbott, a fluent Russian speaker. ``Our talks were very constructive, serious and frank.''

In an apparent attempt to compromise on one of the West's key demands, Yugoslav politicians of various hues called for an international peacekeeping force under U.N. control in Kosovo.

But it was unclear whether they were ready for the force to be armed as the West insists.

Thousands more ethnic Albanians meanwhile poured across the Macedonian border, just hours after the United Nations warned it no longer had anywhere to shelter them in its teeming camps.

``We reached breaking point last night,'' said a spokeswoman for the U.N. refugee agency UNHCR. ``If we get any more we're going to have to give them plastic sheeting and have them camp between other tents.''

In a letter to the president of the Security Council circulated Tuesday, Yugoslav Foreign Minister Zivadin Jovanovic said about 1,000 civilians, including many children, had been killed since the start of NATO air attacks on March 24.

Serbian state television said 20 people, mainly women and children, had been killed in a NATO missile strike on the southern Serbian town of Surdulica Tuesday.

International Committee of the Red Cross (ICRC) president Cornelio Sommaruga told a news conference on his return to Geneva from the Balkans he hoped to receive security guarantees in the next few days from Yugoslav authorities and NATO that would allow his organization to resume relief work in Kosovo.

Sommaruga said the ICRC, one of whose doctors examined three captive U.S. soldiers in Belgrade and found them in satisfactory condition, planned to make more visits to the servicemen.

In the latest of a series of comments seen by some as signs of divisions in the Yugoslav leadership, former Serbian opposition leader Vuk Draskovic told a news conference Belgrade should allow international troops in war-torn Kosovo.

``Russia and the West must approve a compromise on the peace force, and that agreement must be presented to the United Nations Security Council with a demand for an urgent resolution that both sides must respect,'' he said.

Draskovic, brought into the government this year, said he believed Milosevic would back the proposal. His refusal to let in foreign troops caused the collapse of peace talks in March.

Currency dealers said the euro was bolstered by Draskovic's remarks, which buoyed hopes of a peaceful settlement.

Another deputy premier, Zoran Lilic, a member of Milosevic's dominant Socialist Party, was quoted as referring during a visit to Libya to an initiative which included the establishment of a peacekeeping force in Kosovo.

And the Yugoslav Left (JUL) party headed by Milosevic's wife Mirjana Markovic, a powerful politician in her own right, issued a statement saying it supported an ``international presence'' in Kosovo under a U.N. flag with Russia's participation.

NATO struck at the heart of Milosevic's political power in Belgrade again early Tuesday.

Alliance missiles destroyed a TV transmitter on the building housing Milosevic's Socialist Party of Serbia headquarters -- the second time in a week NATO has targeted the block.

Meanwhile the humanitarian crisis was growing by the hour.

As many as 3,000 refugees from Kosovo arrived at the main Macedonian border crossing of Blace as aid workers moved 2,500 more out of a transit area and tried to cram them into camps.

U.N. relief agencies estimate that almost 600,000 ethnic Albanians have fled or been expelled from Kosovo since NATO launched its air campaign on March 24 to drive Yugoslav forces from the southern Serbian province.

SURDULICA, Serbia (Reuters) - Frenzied peace efforts collided with reality on the ground Wednesday as a small Yugoslav town counted corpses from a stray NATO bomb.

Officials in Surdulica said they had pulled 20 bodies from the ruins of houses flattened by a NATO raid Tuesday. Sixteen corpses were laid out in the local morgue as angry residents denounced NATO with shouts of ``Fascists!''

NATO said a laser-guided bomb had gone astray and hit a residential area during an attack on an army training center.

Diplomatic efforts gathered pace, centered chiefly on Moscow, as NATO entered the sixth week of ferocious aerial bombardment aimed at halting repression of ethnic Albanians in Serbia's Kosovo province. But there was no sign of an early breakthrough.

``The search for a political solution is a long, complex, drawn-out process. We are at the early stages,'' United Nations Secretary-General Kofi Annan told reporters.

German Chancellor Gerhard Schroeder said after meeting Annan in Berlin: ``I urge those who expected to have the crisis resolved in a matter of days to have more patience.''

Germany's defense minister and Greece's foreign minister led a procession of international leaders to Russia, a traditional Yugoslav ally, to engage Moscow more deeply in efforts to end the conflict. Annan was flying there later.

In Surdulica, a huge crater was all that remained of one house, where locals said 16 people, mainly children and old people, had been sheltering in a basement when two NATO bombs hit Tuesday. Roofs were damaged and windows shattered on nearby buildings.

Rescue workers combed the ruins, lit overnight with a spotlight -- the only illumination in the little town apart from the hospital. Officials said phone lines and water were cut.

``One third of the town was totally destroyed,'' said Surdulica's mayor, Miroslav Stojilkovic

Reporters were shown two areas where there was widespread damage. A doctor at the local hospital said 11 people had been injured, two of them seriously.

NATO spokesman Jamie Shea told journalists at alliance headquarters in Brussels that the attack had destroyed an army training center, which was considered by NATO planners to be an operational military target.

``During that attack, however, a precision guided weapon failed to guide accurately to its designated target and impacted some 200 to 300 meters (yards) beyond the barracks in a small residential area,'' Shea said.

He added: ``NATO has never, and will never, target civilians.''

Britain said it regretted civilian casualties but it was not possible for NATO to eliminate such risks. Yugoslavia says about 1,000 civilians, including many children, have been killed since NATO launched its air attacks on March 24.

Yugoslav Information Minister Milan Komnenic said the attack on Surdulica was a crime aimed at undermining efforts to bring about a peaceful solution involving the United Nations, something he said NATO opposed.

But he said the tragedy in Surdulica would not jeopardize what he said was Belgrade's commitment to a peaceful outcome.

For the second time this week, a senior Yugoslav official renewed the possibility of a negotiated settlement. Goran Matic, from the Yugoslav United Left party of President Slobodan Milosevic's wife, Mirjana Markovic, told the New York Times: ``I believe that this will be the week in which the basic outline of an agreement on Kosovo can be firmed up.''

NATO Secretary-General Javier Solana said he detected signs of movement in diplomatic efforts to resolve the crisis but made clear there would be no let-up in the military campaign. NATO said it had struck ``a wide spectrum of targets'' in Serbia and Kosovo Tuesday night, the 35th night of air strikes.

The Yugoslav news agency Tanjug said NATO planes again hit the already-devastated oil refinery in the northern city of Novi Sad Wednesday. It said two strong detonations were heard at 1:30 p.m. (1130 GMT) and heavy smoke poured from the facility. There was no immediate word of any casualties.

In the port of Bar, a Reuters correspondent saw the Yugoslav armed forces open fire with anti-aircraft guns and rockets after unidentified planes, assumed to be NATO's, roared overhead.

The barrage, from naval boats in the Adriatic port and nearby guns, lasted at least half an hour.

Bar, located in Serbia's sister republic of Montenegro, is the entry port for vital oil shipments to Yugoslavia, which NATO is trying to choke off.

Eyewitnesses in Montenegro's capital Podgorica said several explosions were heard there around noon GMT and a thick column of smoke was seen rising from the direction of the military airport.

NATO is demanding that ethnic Albanian refugees be allowed to return home to Kosovo, that Yugoslav forces withdraw from the province and that an international peacekeeping force led by NATO should police a political settlement.

U.S. Deputy Secretary of State Strobe Talbott said, however, there was nothing to indicate the Belgrade government was closer to accepting a peace deal for Kosovo on these conditions.

``I have not heard anything from Belgrade to suggest that Belgrade is ready to move in that direction,'' he said after meeting U.N. chief Annan in Berlin.

A worsening refugee crisis underlined the urgency of NATO's attempt to secure autonomy and armed protection for Kosovo's majority ethnic Albanians.

A new busload of refugees arrived at the main Blace border crossing into Macedonia, where 3,500 refugees spent the night crammed into a squalid holding camp.

In Geneva, the U.N. refugee agency, UNHCR, said overcrowding in camps for Kosovo's Albanians had become so extreme that refugees were ``on the verge of rioting.''

``The people are really living in unbearable congestion. It's very, very tense and it has to be defused very, very quickly,'' UNHCR spokesman Kris Janowski told a news briefing.

Macedonia said it would need $485 million in foreign loans and grants to stave off economic and political collapse. Albania, Europe's poorest country, said the flood of displaced people was costing it $33 million a month.

Late Tuesday a new influx of several thousand refugees, overwhelmingly women and children, poured past the Albanian border post at Morina on tractors and carts, in cars or on foot.

Many of them said security forces had pulled out their menfolk near the village of Mej, and a number of refugees said separately they had seen bodies by the side of the road.

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