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"Nato has no alternative but to continue and intensify the air campaign until such time as the Yugoslav side are prepared to implement the agreement fully and without ambiguity," General Jackson said.
According to Nato, the Yugoslav position was inconsistent with what had already been agreed with Yugoslav President Slobodan Milosevic.
But both General Jackson and the Yugoslav delegation have left open the possibility of further talks.
Yugoslav spokesman Nebojsa Vujovic said after the talks broke up: "The Yugoslav delegation is ready for the continuation of talks and demands an end to the bombing."
The main areas of dispute are reported to have been over the timing of the proposed withdrawal and whether some Serbian forces would be allowed to stay in Kosovo.
Heavy bombing and air-raid warnings were reported in Serbia as the meeting drew to a close.
The air strikes had been scaled down in the last three days after President Milosevic said he would accept the joint Western-Russian plan.
Intense strikes
As the pullout talks in Kumanovo in the Former Yugoslav Republic of Macedonia faltered, there were air raid alerts in every major town and city across Yugoslavia in the early hours of the morning, but the capital escaped attack.
US B-52s dropped bombs on Yugoslav armed forces near the Morina border crossing from Kosovo into Albania.
Yugoslavia's state-run news agency Tanjug reported 100 explosions across Kosovo, with intense missile strikes in Pristina, Pec and about 30 other targets.
Kursumlija in Serbia was also hit and bombs smashed television and radio relay towers in the centre of the country.
(Click here to see a map of last night's Nato strikes)
UN resolution
Ministers from the Group of Eight industrial countries, are meeting on Monday to work on the text of a UN Security Council resolution on a settlement of the Kosovo crisis.
The Russian foreign minister, Igor Ivanov, is reported to have already left for the rescheduled meeting.
The G8 meeting had already been postponed once as talks between Nato and Yugoslavia were delayed.
As it became apparent that no agreement was to be implemented, European Union envoy, President Martti Ahtisaari of Finland postponed a trip to Beijing to brief Chinese leaders.
Serb atrocities
Nato has revealed that even after President Milosevic agreed to the peace plan on Thursday, Serb forces perpetrated further outrages in Kosovo.
Over the last two days, there has been mass looting in Prizren and Pristina, and a group of displaced Albanian civilians has been shelled.
Nato's Secretary General Javier Solana, and the UK Prime Minister, Tony Blair, have called for President Milosevic to step down.
Mr Solana said Nato's bombing campaign had not been aimed at overthrowing President Milosevic, but the people of Serbia had to get rid of someone who had inflicted so much suffering and destruction.
(Click here to see a map of forces on the ground)
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Will the refugees go home?
(04 Jun 99 | Europe)
Kosovo Crisis Centre
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Violence greets Clinton visit
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