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BELGRADE (Reuters) - The coalition government of Serbian Prime Minister Vojislav Kostunica was formally dissolved on Monday, opening the way for an early parliamentary election.

The decision was taken at a brief cabinet session following Kostunica’s announcement on Saturday that the government could not continue in office owing to deep disunity over defending Kosovo versus pursuing a place in the European Union.

“The government did not have a united and common policy any more,” a statement said, “and this kept it from performing its basic constitutional function, to define and lead Serbia’s politics.”

President Boris Tadic must now disband parliament and set a date for the election, probably on May 11. It will be the most important election since voters ended the era of the late autocrat Slobodan Milosevic in 2000.

The vote will be a close race between the Democrats and the nationalist Radicals, the strongest party.

Kostunica, whose party lies a distant third, quit after tacitly accusing his coalition partners, the Democrats and the G17 Plus party, of giving up on Kosovo, the 90-percent Albanian province which seceded last month with Western backing.

Not all of the Union’s 27 members have recognized Kosovo, but Brussels is deploying a supervisory mission that will monitor the territory’s progress as an independent state.

Tadic, also the head of the Democrats, said on Sunday that attempts to divide Serbs into patriots and traitors over Kosovo would backfire at the polls. A strong and stable Serbia would be in a better position to defend its interests, he added.

“If we join the EU, then we can make sure that this outlaw state never becomes an EU member, he said on a TV talk-show.

Slovenian Foreign Minister Dimitrij Rupel, whose country holds the EU’s rotating presidency, said he hoped for a victory for pro-European parties in the poll.

“To be quite frank, I don’t think there is any other possibility for our Serbian friends than the European Union. Where should they go?” he said in Brussels on Monday.

‘NO CHANGE’ ON KOSOVO

Serbia spent almost five months in limbo under a caretaker government in 2007, also under Kostunica, until he and the Democrats hammered out a policy they could both stand by.

Their deep differences meant the government worked in fits and starts, between compromise and crisis, moving slowly on reforms and ending up last in the Balkan queue of EU hopefuls.

Polls indicate the election could produce a hung parliament and a coalition deal might need long negotiations.

Such a delay could stall urgent legislation and the arrest of war crime suspects — a key condition for EU membership. But Kostunica’s officials say the caretaker government will stay firm in its total opposition to independent Kosovo.

“Serbs and other loyal citizens in Kosovo shouldn’t worry,” said Minister for Kosovo Slobodan Samardzic.

Belgrade is instructing Kosovo’s 120,000 remaining Serbs to sever ties with Kosovo’s government and ignore the EU mission. The Serb-dominated north is a flashpoint for any move towards a de facto partition.

Kosovo Prime Minister Hashim Thaci, who has warned Belgrade against trying to carve off part of the territory, said on Sunday Kosovo had contributed to Serbia’s democratization.

“In 1999, when we pushed the police, army and administration out of Kosovo, Milosevic’s fall from power started,” he said at a border crossing where he unveiled a ‘Welcome to Kosovo’ sign.

“Now, with Kosovo’s independence, Kostunica has fallen, the mentality of the past has fallen in Serbia.”

BHURBAN, Pakistan (Reuters) - Former Pakistani prime minister Nawaz Sharif agreed on Sunday to join the late Benazir Bhutto’s party in a coalition, raising the prospect of a government hostile to U.S. ally President Pervez Musharraf.

In an ominous sign for Musharraf, Sharif and Asif Ali Zardari, Bhutto’s widower and the new leader of the Pakistan People’s Party (PPP), agreed to restore judges who Musharraf dismissed when he imposed emergency rule in early November.

Bhutto’s PPP won the most seats in a February 18 general election but not enough to rule alone. Sharif’s Pakistan Muslim League (Nawaz), or PML (N), party came second and while it had promised to support the PPP, Sharif had not previously confirmed his party would join the PPP in government.

“The coalition partners … undertake to form a coalition together for a democratic Pakistan,” Sharif and Zardari, who took over as PPP leader after Bhutto was assassinated on December 27, said in their agreement.

Sharif read out the agreement at a news conference with Zardari in the hill town of Bhurban, near Islamabad.

The dismissed judges, including the Supreme Court chief justice, were seen as hostile to Musharraf’s October re-election by legislators for a new five-year term as president while he was still army chief. The judges are likely to take up legal challenges to Musharraf if they are restored.

The agreement between the PPP and PML (N) would appear to dash any hope that Musharraf might have had that the party that backs him, which came a poor third in the election, might be part of a coalition.

The Awami Nationalist Party, an ethnic Pashtun nationalist party which has emerged as a major group in the North West Frontier Province by trouncing hard-line Islamic groups, will also be part of the PPP-led coalition.

The Jamaiat-e-ulema-e-Islam, a major Islamic party, has also said it had agreed “in principle” to join the coalition.

Zardari and Sharif agreed the reappointment of the dismissed judges would occur through a parliamentary resolution within 30 days of the formation of the government.

Musharraf quit as army chief in November, before being sworn in as civilian president.

Western allies and Pakistan’s neighbors, concerned about instability in a nuclear-armed state already reeling from suicide bombings by al Qaeda-inspired militants, fear more political upheaval in the country in case of confrontation between the president and new government.

TEAR GAS

Lawyers launched a week of protests on Sunday to press for the restoration of the judges. Police fired tear gas at protesters near the home of former chief justice Iftikhar Chaudhry where he has been detained since November.

It was a year ago on Sunday that Musharraf first suspended Chaudhry, touching off protests by lawyers and the opposition.

Sharif, who Musharraf ousted in a 1999 coup, has been calling for the unpopular president to step down, and on Sunday said Musharraf should accept the people’s verdict “against dictatorship”.

Zardari was more conciliatory, saying he did not believe in “personal agendas”.

Musharraf has advised a new government to focus on fighting terrorism and sustaining economic growth rather than politics.

Musharraf said last week it would be a week or two more before the new National Assembly is convened but Sharif and Zardari called for the session to be called immediately.

While the parties agreed on a coalition, questions have arisen in Bhutto’s party over its candidate for prime minister.

Zardari’s deputy chairman and Bhutto’s close aide, Makhdoom Amin Fahim, has been regarded as the likely choice for the job but a delay in nominating him has led to doubts.

Ahmed Mukhtar, a former commerce minister in Bhutto’s cabinet, has emerged as another contender, since Zardari himself is ineligible as he does not hold a seat in the assembly.

Speaking to private television channels, Fahim mentioned the possibility of quitting the party if he were not nominated, adding he did not want party rifts.

(Additional reporting by Zeeshan Haider; Writing by Robert Birsel; Editing by Matthew Jones)