The main ethnic Serb political party in Croatia has agreed to back the nationalist-led government in return for concessions on minority rights.
Some Serb refugees have returned back to Croatia
Under the deal, the new HDZ-led cabinet will help Serbs who fled Croatia during the 1991-1995 war to regain possession of their properties by the end of 2004.
The Serb party, SDSS, said it would also push for Croatia to scrap visa regime with Serbia-Montenegro.
Croatia is under pressure to improve its minority rights to join the EU.
The deal comes as the HDZ - Croatian Democratic Union - prepares to take office next week, after winning elections in November.
The HDZ, which secured 66 of the 152 seats in parliament when it defeated the centre-left coalition, will depend on outside support to rule.
The SDSS - Autonomous Democratic Serbian Party - has three deputies in the parliament.
"For us, it's a good start that HDZ has agreed to work on resolving our main problems," SDSS vice-president Milorad Pupovac told reporters.
Sanader insists his party has reformed
"We will see how they put it into practice," Mr Pupovac added.
He stressed that the main issues in the agreement were restoring the property rights of ethnic Serbs and also full political inclusion of the Serb community as guaranteed by Croatia's law on minority rights.
The SDSS said it would not formally join the HDZ-led cabinet, but would support it in parliament.
HDZ's leader Ivo Sanader says he will ask parliament to vote on the deal on Monday.
Analysts say the deal means that the Serb party no longer views the HDZ - which led Croatia to independence in 1991 and later into international isolation with its nationalist policies - as a threat.
Mr Sanader says he has reformed and moderated the party.
He says his government's priorities will be raising living standards, resolving unsettled issues with neighbours and acquiring European Union membership.
Earlier this month, the EU urged the new Croatian Government to co-operate fully with the International Criminal Tribunal for the former Yugoslavia.
The EU also called on Zagreb and fulfil its promises on minority rights and the return of nearly 300,000 Serb refugees.