VUKOVAR, Croatia (Reuters) - The neat, freshly rebuilt houses in Vukovar testify to Croatia's determination to heal the scars of this town on the Danube after shelling from Serb rebels in the war of independence nearly erased it in 1991.
But plans to add Serb Cyrillic script to signs in Vukovar threaten to inject a sour note into government efforts to rebuild trust between Serbs and Croats just as Croatia prepares to join the European Union on July 1.
Serbs won the right under the constitution to use their language and script in Vukovar after the 2011 census showed in December they had crossed the threshold of one-third of the municipality's population for the first time since 1991.
While bilingual signs have not met with resistance in a dozen areas with a sizeable Serb minority, Vukovar, a symbol of war suffering for many Croats, has taken a different path.
In February, thousands of Croats led by war veterans in fatigues rallied in the town against having Cyrillic signs, stirring up bad feeling among local Serbs.
"You don't feel comfortable in this atmosphere, with 20,000 people rallying against something you want," said Srdjan Milakovic, a local Serb leader and city councilor. "For Serbs in Vukovar, the Cyrillic is a matter of equal rights, an indicator of how Croatia treats its Serb community."
Serbs and Croats, who are both Slavs and speak almost the same language, united in Yugoslavia in 1918 but have had a turbulent history of conflicts and disagreements since, mainly over equality and dominance in the region.
When Croatia declared independence in 1991, its Serbs rebelled and said they wanted to stay in Yugoslavia.
Vukovar was besieged for three months before it was captured in November 1991 by Serb and Yugoslav army troops, who made it part of the self-styled Republic of Serbian Krajina and drove out remaining Croats.
Croatian government troops recaptured the region in 1995, spurring an exodus of thousands of Serbs. Two years later, when the last remnant of Serb-held lands around Vukovar reverted to Croatian control, most of the remaining local Serbs stayed on, this time as a designated minority.
The war, which claimed tens of thousands of lives, made Serbs the villains in the eyes of many Croats - a sentiment that has faded over time but never completely gone away.
As proof of that, the Croat protesters in Vukovar say Serbs have no moral grounds to demand anything.
"Everyone knows what happened here in 1991. The Serbs expelled 25,000 and killed 5,000 non-Serbs," said Tomislav Josic, a retired war veteran who heads the movement for the "Defence of Croatian Vukovar".
"Croats see this (script issue) as a new aggression, an insult, a reward for the aggressor," Josic said. Protests would continue, he said.
The 2011 census put Serbs in Croatia at around four percent, down from 12 percent in Yugoslav times, making up the country's largest minority with almost 200,000 people. Serb artists, politicians and sportsmen have long been integrated in Croatia's history, for example scientist Nikola Tesla, an ethnic Serb born in Croatia, who is today hailed in both Serbia and Croatia.
In the capital Zagreb, which was spared destruction in the war, there are several Serbian restaurants, including the hugely popular one known as "Kod Srbina" (At the Serb's), and one secondary school, run by the Serb Orthodox church.
Detailed reports from Orthodox Christmas celebrations today regularly feature in the national media - something unthinkable a decade ago when the country, with 90 percent of the population declared as Roman Catholic, the religion of Croats, ignored the Orthodox faith of the Serbs.
But problems persist.
Croat and Serb children in Vukovar still go to separate schools, their brothers and fathers play in separate soccer clubs and have separate coffee shops. Mixed marriages are rare.
"Are Serbs second-class citizens in Croatia? Not everywhere, not with the same intensity, but yes they are," said Cedomir Visnjic, head of Prosvjeta, a culture society with a mission to preserve the Croatian Serbs' identity.
Doris, a 49-year old Zagreb-based translator whose name can be both Croat or Serb, has kept her Serb origin a secret even from friends, echoing remarks by local Serb leaders that Serbs were often too intimidated to declare their ethnicity.
"I always tried to steer conversation with colleagues or friends away from that. A few times I was insulted when it (her Serb background) was found out. That's why I always sought jobs with international organizations," she said.
In most of the former Krajina, in mountainous central Croatia, only elderly Serbs live in remote villages, scattered over a virtual wasteland devoid of people or industry.
The United Nations refugee agency UNHCR says around 250,000 Serbs left Croatia during the war. Under Western pressure afterward, Croatia proclaimed a blanket amnesty for Serb soldiers, and around 133,000 have returned.
But jobs are scarce for Croats and Serbs alike and life is even more difficult than it was before the war, when towns had some industry. Serbs who have returned live on welfare or pensions equaling 100 euros a month.
Electricity has yet to be restored to some 30 Serb villages, said Mario Pavlovic, an official from the UNHCR in Croatia.
In Bobodol, just outside the former rebel stronghold of Knin in central Croatia, a short drive on a gravel road reveals row after row of abandoned, burnt-out houses.
Only eight elderly Serbs live there. They have no problems with Croats in a nearby village, who are just as poor.
"There is no doctor, no ambulance, no jobs. How could a young person come to live here?," said 83-year old Nikola Jankovic, who has two children living in Zagreb and two in Serbia.
The EU is not keen to add to the ethnic problems it has faced over the past decade since Hungary and Romania joined the group. Only last weekend, tens of thousands of ethnic Hungarians rallied in Romania to demand greater autonomy, sparking a diplomatic row between the two EU members [ID:nL6N0C7850].
EU officials say they are watching the dispute in Vukovar with interest but are not overly concerned.
"This is more of an emotional issue than a real problem and it will go away in time," a Zagreb-based diplomat said.
"I do not doubt Cyrillic signs will come, but for now we are watching because it is a matter of respecting the rule of law."
The government in Zagreb says the bilingual signs will be put up, but probably after local elections in May. In other parts of Croatia, Italian and Hungarian minorities have long had bilingual signs.
"We, the Serbs, have had to get used to our new status. We were never a minority here," said Serb leader Milakovic.
"We are patient but we'll not give up. It's the law and it must be implemented or changed."
Editing by Sonya Hepinstall