By Beti Bilandzic

BELGRADE, April 16 (Reuters) - Serbia and Montenegro still hopes to forge closer ties with NATO, the country's new defence minister says, even if it has yet to meet the key condition of delivering top war crimes fugitive Ratko Mladic.

Prvoslav Davinic said he hoped Belgrade's "constructive stand" during last month's violence in Kosovo would encourage the military alliance to invite it to join the Partnership for Peace (PfP) security forum at a NATO summit in Istanbul.

Davinic, speaking before he was endorsed by parliament on Friday as part of a government reshuffle, said Belgrade had cooperated with NATO to prevent a wider regional escalation during the ethnic clashes in the U.N.-run province.

"I hope our latest actions can persuade them to find a compromise solution and stress our contribution to security," Davinic told Reuters in an interview late on Thursday.

"At this moment our joining or not hinges on the resolution of the case of General Mladic and I think there is good will to resolve this but the difficulty lies in identifying where he is," said Davinic, 65, a former United Nations official.

Western officials have praised the Serbian authorities for showing restraint when Albanian mobs attacked Serb villages and churches in two days of violence that killed 19 people.

The 26 NATO allies are linked with a score of countries in the PfP, a forum for cooperation with non-members also seen as a staging ground for entry into the alliance if desired.

Serbia's request to join PfP was made last June, just four years after NATO warplanes bombed it for 11 weeks because of its repression of Kosovo, after which the majority Albanian province became a de facto international protectorate.

East European leaders meeting in Slovakia in March said the latest Kosovo flare-up showed NATO must push on eastwards and integrate the western Balkans as quickly as possible.

If neighbouring Bosnia gets a place in the PfP at the Istanbul summit, Serbia-Montenegro will be left as the only European country with no formal relationship with the U.S.-led alliance.

NATO officials have made clear that Belgrade must arrest wartime Bosnian Serb military chief Mladic if he is in the country, and drop a lawsuit over the alliance's 1999 bombing campaign to upgrade ties.

Serbian Interior Minister Dragan Jocic said this week that Mladic, twice indicted by the United Nations war crimes tribunal for genocide during Bosnia's 1992-95 war, had not been seen in Serbia since 2002, contradicting the U.N. war crimes prosecutor.

"The big enigma remains: if he is in this country, who is protecting him?" said Davinic, a military expert and a member of the liberal G17 Plus party. "Our commitment to cooperate with The Hague remains and our country intends to fulfil it."

Davinic also said he would work to downsize the armed forces from the current 70,000 level, but this would take several years and a safety net must be provided for those who lost their