"These negotiations have been concluded. The text has been initialled by both prime ministers", she told reporters. "I want to congratulate them for their determination over these months and for the courage that they have. It's very important that now what we are seeing is a step away from the past and for both of them a step closer to Europe", she said.

Delegations of Serbia and Kosovo, led by their respective prime ministers, met in Brussels on Friday for a tenth round of talks on the degree of autonomy for the Serb-majority municipalities in northern Kosovo.

Prime Minister Dacic stated that all the Serb conditions had been accepted and that an agreement, which was the most favourable for the Serb side offered yet, had been reached.

On the other hand, Prime Minister Thaci said that the initialled agreement guaranteed "recognition of Kosovo, as an international subject, its sovereignty and territorial integrity".

Asked to comment on Dacic's statement that all the Serb conditions had been accepted, Thaci said that Serbs always in the past spoke about their victories but the practical situation will show the true picture, he said.

The 15-point agreement proposed by Ashton took into account the views of both parties. The majority of the points related to the association of Serb municipalities in northern Kosovo where around 50,000 ethnic Serbs live and over whom Pristina has no control, which has been threatening regional stability since Kosovo gained its independence in 2008.

Dacic said that point 9 of the agreement, which refers to the police, had remained unchanged which means that regional police in the association of Serb municipalities will remain within the framework of Kosovo police and will be paid by Kosovo. The regional police commander will be a Kosovo Serb to be appointed by the Kosovo interior ministry, selected from a list proposed by the police chiefs of the four Serb municipalities.

The two sides undertook not to block each other's path toward the European Union.

According to the agreement, the association of four municipalities predominantly populated by ethnic Serbs - Sjeverna Mitrovica, Zubin Potok, Zvecane and Leposavic - will have a statute and its powers will be in line with the European charter of local self-government and with Kosovo legislation. The association could have additional powers if the central government in Pristina approves.

European Commission President Jose Manuel Barroso and Enlargement Commissioner Stefan Fuele welcomed the agreement.

Ashton will inform EU foreign ministers of the agreement when they meet in Luxembourg on Monday. A final decision on further steps on the path to the EU for Serbia and Kosovo will be adopted at a summit of EU heads of state in June.