Many of the refugees have been camped out on wooded hillsides, while another group of 1,000 managed to cross the border into the neighbouring former Yugoslav Republic of Macedonia.

Serbian forces have gathered on the Kosovo-Macedonia border, as a defiant sign to the international community and Serbia that it will not accept foreign peacekeeping troops in the province.

Jacky Rowland in Kosovo: "Yugoslavia is unrepentant"

At a meeting of Nato ambassadors in Brussels, the United States envoy, Christopher Hill, said that the Yugoslav army operation is in clear violation of last October's ceasefire agreement.

Serb defence

A monitor from the Organisation for Security and Co-operation in Europe (OSCE), who did not want to be named, said: "My own feeling is that Yugoslav army troops were deployed into the area in the first instance to show the Serb population in Serbia that Belgrade would defend Kosovo against Nato."

Peter Biles: Many mountain villages have been abandoned

On Wednesday, Nato's rapid reaction force commander, Lieutenant General Mike Jackson, said that peacekeeping troops would not go into Kosovo without Yugoslav President Slobodan Milosevic agreeing to a peace deal.

Asked about the chances of Nato troops being invited in, Lieutenant Jackson replied: "You had better ask him."

Villages abandoned

It is understood that many mountain villages have been abandoned near to the town of Kacanik and the border town of Jankovic.

BBC Correspondent Peter Biles says that the Kosovo border region, close to the main crossing point into Macedonia, has been extremely tense: "There's a heavy Serb army and police presence on the main road that runs south towards the Macedonian capital, Skopje. On Tuesday, the sound of shelling could be heard from the hills nearby."

With the Serb security forces there in strength, correspondents say it is impossible to verify what is happening.

OSCE monitors also reported seeing the arrival at Pristina airport on Tuesday of 14 Mig fighter aircraft.

Serbs flex muscle

Our correspondent says there was no resumption of the firing on Wednesday morning and the situation was described as calm; but the Serbs continue to flex their military muscle in Kosovo.

But there is growing anxiety among international observers about the recent hostilities between the Serb security forces and the rebels of the Kosovo Liberation Army (KLA).

The fear is that a further escalation of the conflict could undermine the peace process.

Renewed hope

But since Tuesday's resignation of the KLA's political representative, hardliner Adem Demaci, some ethnic Albanian leaders seem to be indicating that they are now ready to sign a peace agreement, when talks reconvene in Rambouillet, outside Paris, on 15 March.

Hardliner Demaci's resignation gives rise to optimism

Mr Demaci, who is against the peace deal, proved a powerful influence on the Rambouillet talks which after 17 days, ended with no long-term settlement.

But amid the optimism, the OSCE chairman, and Norwegian foreign minister, Knut Vollebaek, warned that the continuing violence in Kosovo remained a serious destabilising factor.

He said: "I am very concerned by the increase in hostilities lately and I have urged in my discussions, both in Belgrade and in Pristina to show restraint. A further escalation of the conflict could put the whole peace process at great risk."