A K-For spokesman said three soldiers gunned down the two men after coming under automatic fire from an approaching car early on Saturday.

One of its occupants was killed outright, and three were injured, one of whom subsequently died in hospital.

An automatic weapon was found in the car and the incident is now under investigation by the military police.

The BBC's John McIntyre: "The incident happened just before midnight"

A K-For spokesman, Major Jan Joosten, discounted any suggestion that the soldiers may have over-reacted.

Eight K-For troops had been guarding a building containing 50 Serbs terrified by a Kosovo Albanian rally.

Tens of thousands of Kosovo Albanians were marching to mark the declaration of independence in Kosovo by Albanian opposition movements.

The mood was generally celebratory, but some people burned Serbian and Yugoslav flags and pulled down Serb shop signs.

The shooting highlights the instability in the province, a day after Kosovo Albanian and Serb leaders issued a joint statement calling for an end to ethnic violence in the province.

Hope against history

However, the newly appointed United Nations civilian administrator for Kosovo, Bernard Kouchner, has said he believes reconciliation is possible between the two sides, despite the weight of history.

Speaking in a French radio interview, he also said his top priority was the return of all refugees.

(Click here to see a map showing refugee movements)

He said the rebuilding of Kosovo had to be directed towards making the returnees feel safe and ensuring they had the basic minimum in terms of food and health care.

Germany has said it will start repatriating Kosovo Albanian refugees next Wednesday.

K-For spokesman, Lt Col Robin Hodges: The soldiers thought their lives were in danger

The Interior Minister, Otto Schily, said the refugees would be flown back on a voluntary basis and each would be given a resettlement payment of some $240.

During the conflict, Germany took in some 15,000 refugees, more than any country outside the Balkans.

It has sharply criticised appeals by the United Nations refugee agency to delay the repatriations until next spring.

The return of thousands of Kosovo Albanian refugees to the province has caused at least 70,000 Serbs to leave the province, fearing revenge attacks.

Pristina airport to reopen

The situation may improve when additional Russian troops arrive in the province on Sunday. Many Serbs see the Russians as allies.

Their deployment is part of an agreement which ended the standoff at Pristina airport, which Russian soldiers seized after racing from Bosnia ahead of the arrival of Nato forces.

The airport - originally opened a week ago - is being reopened to military flights on Saturday after undergoing repairs and improvements.

Russian troops will manage ground operations and much of the security, while British forces will handle air traffic control.

K-For hopes civilian relief flights will begin within a week.

'Down with Milosevic'

Isak Berisha is treated by a nurse in Pristina after being shot by the British K-For troops

The pressure on Yugoslav President Slobodan Milosevic increased on Friday when some 5,000 protesters gathered in Serbia's northern capital Novi Sad to call for his resignation.

Opposition leaders vowed that rallies would go on throughout the summer to demand the reconstruction of the city which bore the brunt of the Nato bombing campaign.

Britain and the United States have said that Serbia will get no reconstruction aid as long as Mr Milosevic remains in power.

Montenegro calls for cash

For its part, the Montenegrin government has announced it will seek compensation from Nato for the damage done to its economy by alliance bombing during the Kosovo conflict.

The Tourism Minister, Vladimir Mitrovic, said Montenegro had lost more than $50m in tourist revenues, in addition to suffering damage to its infrastructure and industry.

He said several Nato countries had expressed readiness to pay compensation.

During the conflict, Montenegro's pro-Western government refused to support President Milosevic and sheltered opposition leaders and army reservists resisting the draft.

• Albanians shot dead by K-For
• K-For put to the test
• Milosevic hunts for coalition partners
• UN appoints Kosovo chief
• Milosevic: 'A cancer in the Balkans'