Belgrade erupted in celebratory gunfire after word of the military withdrawal deal flashed through the Yugoslav capital.

Western leaders welcomed the agreement over the withdrawal of Serb forces from Kosovo. However, they sounded a stong note of caution.

US President Bill Clinton described the deal as "another important step toward achieving our objectives in Kosovo", but added that Nato would "watch carefully" for movements in Serb forces.

General Sir Michael Jackson: A difficult task ahead

"If the Serbs live up to what they have signed, this will end the killing and begin the peace," US Defence Secretary William Cohen added.

Nato Secretary-General Javier Solana said the deal marked "a great day for the cause of justice, for the people of Kosovo."

He said Nato would end its air campaign as soon the "effective beginning" of the withdrawal of Serb troops was verified.

The United Nations Security Council has said it is waiting for Nato to stop the bombing before it will vote on the draft resolution, drawn up by the G8 countries on Tuesday.

China, which has proposed a series of ammendments and could veto the resolution, is expected to abstain - although shortly after the deal was announced, UN Deputy Representative Shen Guofang said it was "too early to say something on the voting position".

Yugoslav jubilation

BBC's John Simpson in Belgrade: Alot of jubilation tonight

In Yugoslavia, the state broadcasting organisation said President Milosevic had won the war and that Nato aggression had been stopped by his policies.

Serb TV said: "The policy of Yugoslavia and President Slobodan Milosevic has won."

The agreement "guarantees the implementation of the agreement from Belgrade on the political solution to the (Kosovo) crisis," it added.

Refugee joy

In northern Albania, refugees who had fled Kosovo embraced one another when they heard news of the agreement which should enable them to return home.

Isa Zymberi: The burning issue for the refugees is a safe return home

Isa Zymberi, the head of the Kosovo Information Centre in London, told the BBC that the Kosovo Albanians would be "pretty cautious".

He said: "They know Milosevic far better than anybody else and he still has alot of ground to fool around with the West."

'A huge job to be done'

In Britain, UK Prime Minister Tony Blair said the deal meant that all of Nato's demands had been met.

But he added: "We must show the same resolve in seeing this agreement implemented as we have in conducting the air campaign.''

An estimated 860,000 refugees have fled Kosovo since March, most of them crossing into Albania and Macedonia.

Mr Blair said the main task lay in returning the refugees home.

"There is now a huge job to be done as the Serb forces go out, the international forces go in and we get the refugees home. We have made a pledge to the refugees that they will go home and we will deliver on that," he added.