Seven Bosnian leaders, including Bosnian Serb Prime Minister Milorad Dodik and two Muslim leaders Haris Silajdzic and Sulejman Tihic, were taking part in the talks that are taking place at the military base of the EU Force (EUFOR) in Sarajevo, an AFP photographer reported.

The meeting was being chaired by Swedish Foreign Minister Carl Bildt, whose country holds the EU presidency until the end of the year, and US Deputy Secretary of State Jim Steinberg.

Brussels and Washington unexpectedly announced the meeting last week expressing their serious concern about the political deadlock and need to resume progress towards European integration.

It follows a visit in May by US Vice President Joe Biden and EU foreign policy chief Javier Solana, who said they gave Bosnian leaders an "electric shock" to shape up on reforms.

Bildt and Steinberg said in an open letter to Bosnian citizens on the eve of the meeting the "fundamental issues" to be discussed are "completion (of the conditions) for the closure of the Office of the High Representative (OHR) … and constitutional changes to achieve functionality and efficiency of government structures."

The High Representative — a position created under the peace deal that ended Bosnia’s 1992-1995 war — has the power to impose laws and sack obstructive local officials.

The post of international envoy was due to be phased out in 2007 but the mandate was extended because of political instability and the failure of local politicians to pass reforms.

Conditions for the OHR closure include the international community’s positive assessment of the situation in ethnically-divided Bosnia.

Since the 1992-1995 war Bosnia has consisted of two semi-independent entities — the Serbs’ Republika Srpska and the Muslim-Croat Federation — linked with weak central institutions.

In a bid to make the country more functional and bring it closer to Europe the international community has been insisting on strengthening the central institutions at the expense of the ethnic entities and reforming the constitution.

Bosnia remains riven by ethnic tensions among its Croats, Muslims and Serbs.

The dispute underlines deep divisions over how to organise the country, with Serbs insisting on retaining autonomy while Muslims and Croats favour stronger central institutions.

Analysts say that the political climate in Bosnia — where inter-ethnic war left at least 100,000 people dead and more than two million homeless — has deteriorated so much that only a strong push by the international community could make local leaders reach an agreement on reforms.

The EU Enlargement Commissioner Olli Rehn who is also taking part in talks, said earlier that there were a "chance to really give a new momentum and make progress toward EU (membership)."

"Only a fully sovereign state which has a functional state structure is a credible candidate for the EU," Rehn said upon his arrival here on Thursday.

"By taking actions on these issues the country can send credible application for EU membership even quite soon " he stressed.

Bosnia signed a Stabilisation and Association Agreement with Brussels in 2008, seen as the first step towards membership in the bloc.

Amra Hadziosmanovic/AFP/Expatica