President Boris Tadic said "the issue has been successfully resolved" in his meeting with Russia's ambassador to Belgrade, Aleksander Alexeyev, who has given "a positive response" to Serbia's appeal that the Zastava arms company is allowed to sell guns and rifles worth US$2.55 million (?1.94 million) to Armenia.

Earlier this month Zastava criticised the Serbian government for withholding permission for its previously arranged sale to Armenia, allegedly because Russia — Serbia's traditional ally — objected to the Serbian supplier venturing into a market usually supplied by Moscow.

Zastava, based in the industrial city of Kragujevac, 90 kilometers (55 miles) southeast of Belgrade, is majority state-owned but its management enjoys some autonomy in negotiating arms deals. Actual exports, however, can be completed only with a government clearance.

Zastava's unionized workforce of 2,600 has been on strike, demanding financial compensation from the government because of the blocked sale to Armenia. Defense officials have flatly rejected the demand.

The dispute deepened this week when 80 Zastava workers seized control of Kragujevac city hall, saying they would keep up their protest until the authorities either approve the export or cover any loss caused by the ban.

There was no immediate comment to Tadic's announcement from Zastava managers or protesting workers.

The issue has become an embarrassment for Prime Minister Vojislav Kostunica ahead of Jan. 21 parliamentary elections. Tadic is his political rival, heading the opposition Democratic Party that currently leads in opinion polls. The Associated Press

/The International Herald Tribune/