``NATO has approved issuing of an activation warning for both a limited air option and a phased air campaign in Kosovo,'' Secretary-General Javier Solana said.

In a statement during a two-day NATO defence ministers' meeting in Portugal, he said this was an important signal of NATO's readiness to use force if necessary. He hoped President Sobodan Milosevic would heed the message.

For the past seven months, the Yugoslav army has been fighting ethnic Albanian separatists in Kosovo, a province of Serbia, in the former Yugoslavia, displacing thousands of Albanians who constitute 90 per cent of Kosovo's population.

NATO officials said the 16-member alliance has completed plans for a range of possible military actions against Milosevic's forces, including a limited missile strike, an escalating aircampaign first against military targets in Kosovo and then against targets throughout Serbia.

They said the plans could require several hundred war planes. Shortly after NATO's decision, Holand promised F-16 squadrons and Germany promised 14 tornado planes. Hosts Portugal made one frigate available as well as three F-16 planes and 100 men.

The action by NATO came just a day after a UN Security Council resolution demanding that Belgrade stop attacks against Albanian rebels in the Kosovo province.

The UN resolution urged both sides to start negotiating a solution and demanded that Milosevic allow international monitoring in Kosovo for the safe return of refugees.

Reports said even while the UN Security Council and the NATO issued strong warnings to President Milosevic, Serbian forces have reportedly continued advances into the last pockets of Kosovo resistance.

Fighting has forced some 3,00,000 people from their homes across Kosovo, including some 50,000 who are camped out in the countryside inprimitive conditions.

President Milosevic insists his forces have a right to tackle secessionist insurgency from the Kosovo liberation army within Serbia's borders.

But the western alliance has repeatedly called for a political settlement in Kosovo, which would give its 1.6 million ethnic Albanian people a large degree of self-determination if not complete independence.