BRUSSELS -- European nations reacted with dismay Friday to news that the United States would no longer enforce a UN arms embargo against Bosnian Moslems, while in the north of Bosnia, Moslem forces suffered major setbacks in the face of a Serb onslaught.


"What is happening is that contradictions that have existed for a long time within NATO with regard to Bosnia are now being exposed as a consequence of U.S. domestic policies," said Martin McCusker, director of the defense and security committee of the North Atlantic assembly.


Some NATO diplomats said they feared the move was only a step along the road to a complete lifting of the arms embargo, strongly opposed by Britain and France, which fear it could put their UN peacekeeping troops in jeopardy.


Britain, which along with France has made clear it will pull out its peacekeepers if the arms embargo is completely lifted, was quick to voice its concern over the move. "It is a worry because this is a mandatory resolution of the Security Council and an agreed policy of the alliance," Foreign Secretary Douglas Hurd told BBC radio.


Denmark, which has more than 1,000 peacekeepers in the former Yugoslavia, also distanced itself from Washington, saying its support for the embargo was unaffected by the U.S. move.


"Our position is quite clear. We want the embargo to be enforced," Foreign Minister Niels Helveg Petersen told reporters after a meeting of parliament's foreign policy committee.


In Paris, the head of the Western European Union parliamentary assembly called for urgent action to fill the gap created by the U.S. decision.


"The United States dominates the NATO command structure, and the withdrawal of U.S. ships and aircraft would make a mockery of the embargo operations," assembly president Sir DudleySmith said in a statement.


As news of the decision reverberated around the Brussels headquarters of the North Atlantic Treaty Organization, diplomats spoke of a new crisis in trans-Atlantic relations, already strained by the Bosnian crisis.


"This is quite breathtaking. I am not happy about it," said one senior NATO diplomat.


Western defense analysts stressed the move would have little immediate military impact, because Washington would still apply the ban to heavy weapons.


"Bosnia is not suddenly going to have a huge arms inflow because of this decision," said one NATO source. He added the U.S. had not extended its lifting of the ban to the airways.


While diplomats contemplated the consequences of the U.S. move, fighting raged in Bosnia on Friday as Moslem forces defending the enclave of Bihac from Serb attackers were rolled back so swiftly by an armored onslaught that they could be trapped, UN officials said.


"The Bosnian Serb counterattack has really kicked off in the last 24 to 36 hours," said Colonel Tim Spicer, a senior aide to the UN commander in Bosnia, General Sir Michael Rose. "There are indications that a proportion of the (Bosnian government) troops could be cut off in the Serb advance," he said.


Bosnian government troops made a surprise assault two weeks ago. The Bosnian Serb army now seems ready to punish them.