(Edits, adds background, details)

By Ivana Sekularac

BELGRADE, Oct 12 (Reuters) - Serbia on Friday offered a reward of 1 million euros ($1.42 million) for information leading to the arrest of top war crimes fugitive Ratko Mladic, 12 years after he was indicted for genocide in the Bosnia war.

Mladic is known to have been living in Belgrade until early 2006, allegedly with the protection of hardliners in the Serbian Army and security services. The United States has offered $5 million for his arrest since 1999.

Sending Mladic to the U.N. tribunal in The Hague is a key condition for Serbia's hopes of joining the European Union. Progress will be reviewed by EU foreign ministers on Monday.

Serbian crimes prosecutor Vladimir Vukcevic said Serbia's decision to post a reward did not mean the wartime commander of Bosnian Serb forces was still in Serbia, but simply that there was the political will to capture him and two other fugitives.

"We're looking for them as if they were here, but we are not sure," he told local media. "We don't know where they are."

Serbia's actions are closely watched by Carla del Ponte, the Hague's chief prosecutor. Her reports to Brussels resulted in a freeze on Serbia's EU talks in May 2006, and their resumption a year later in June 2007 after cooperation improved.

If del Ponte reports an improvement to EU ministers, the bloc may decide to initial, but not yet sign, a Stabilisation and Association Agreement with Serbia, a EU source said.

Mladic was indicted on two counts of genocide, for the slaughter of some 8,000 Muslim captives at Srebrenica in 1995 and for the deaths of over 10,000 Bosnian civilians during the 43-month siege of Sarajevo by forces under his command.

But he is a hero for Serbian ultranationalists, who would organise protests against any government that turned him in to a tribunal they say is completely biased against Serbs.

In a separate interview with Austrian radio, Serbian President Boris Tadic said Mladic's arrest could also affect tense negotiations over the breakaway province of Kosovo, whose 90-percent Albanian majority demands independence.

"The delivery of Mladic could improve Serbia's negotiating position in the issue of Kosovo," he said. "Our international credibility would improve dramatically, we'd have a markedly better chance to defend our national interests."

The EU has never openly linked Mladic's capture with the status of Kosovo. The province has been run by the U.N. since 1999, when NATO expelled Serb forces accused of carrying out ethnic cleansing of Albanians while fighting an insurgency.

Serbia, backed by Russia, opposes Kosovo independence. the latest talks are set to end on Dec. 10, with Kosovo leaders threatening to declare independence soon after.

Rasim Ljajic, Serbia's point man in dealings with the Hague tribunal, said rewards of 250,000 euros each were also offered for information leading to the arrest of Bosnian Serb Stojan Zupljanin, a former senior police commander, and Croatian Serb leader Goran Hadzic.

But there would be no reward for Radovan Karadzic, the Bosnian Serb political leader indicted on the same charges as Mladic for his role in the 1992-95 Bosnia war.

"He is not a Serbian citizen, and there was no legal basis to offer a reward," Ljajic said. (Additional reporting by Ljilja Cvekic, Ksenija Prodanovic)

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