The final communiqe also calls on the Yugoslav authorities to "embrace democratic change" or remain an outcast.

The Bosnian capital - which still bears the scars of the 1992-95 war - is a symbolic venue for the 40-country summit.

"We regret that we were not able to invite the Federal Republic of Yugoslavia to be present today as a full and equal participant in the Stability Pact," the declaration said.

Bridget Kendall reports: "Getting consensus was always going to be difficult"

"All participants must respect the principles and objectives of the pact."

But the post-summit statement pledged to consider ways of making Montenegro - Serbia's junior partner in the federation - "an early beneficiary of the pact".

Montenegrin President Milo Djukanovic is an outspoken opponent of Slobodan Milosevic.

Earlier, US officials pledged $150m to stimulate American investment in the Balkans, adding that industrial and agricultural goods from the region will be allowed into the United States free of duty.

But the Americans stress that the burden of the Stability Pact must be borne by the European Union and the governments of the region.

Disagreements over Serbia

A diplomatic wrangle which overshadowed the beginning of the summit appears to have been resolved.

US troops are part of 4,000-strong summit security force

Russia disagreed with western delegations over whether Mr Milosevic should be directly blamed for Serbia's exclusion from international reconstruction.

But some senior international figures - among them the UN envoy Carl Bildt - say the pact is unlikely to work without Serbia.

President Ahtisaari of Finland, chairing the summit, said it would be most unfortunate if the meeting was seen as "an alliance against Serbia".

The US view is that it is less costly in lives and money to contribute to a plan to bring peace and prosperity to the region than to have to mount another costly Nato intervention.

'Balkan model'

Before the conference convened, President Clinton met the three incumbents of Bosnia's revolving presidency and praised the country as a model for recovery in the Balkans.

"They've done a remarkable, astonishing job of rebuilding Sarajevo," Mr Clinton said as he met Bosnia's Muslim, Croat and Serb presidents.

On the sidelines of the conference, Bosnia and Croatia signed an agreement to define their 1,000km border.

Carl Bildt: "We must stop the process of distintegration"

The Bosnian Serb co-Prime Minister, Svetozar Mihajlovic, refused to attend the signing because the agreement ceded a small area of land in north-western Bosnia to the Croatia.

Sarajevo has been placed under a strict security regime while the international leaders are in the city.

Sarajevo still bears the scars of the 1992-95 war

Residents were told to stay off the streets and away from balconies on the route of the conference motorcades.

After the conference, Mr Clinton was due to visit a multi-ethnic school in Sarajevo and a Serbian orthodox church.