SKOPJE Macedonia's ethnic Albanian rebels said on Saturday they had lost two northeastern villages to government troops, but vowed to fight on.

Both sides said the safety of civilians, who have been fleeing the area En Masse since Thursday when the army launched a ground assault, was their top priority.

It was the first military success by security troops since May 3, when the National Liberation Army rebels occupied some 10 villages in the Kumanovo area.

"The NLA is no longer in Vakcince but is holding positions above it," a NLA commander who uses the name Shpati told Reuters by telephone. He said Lojane, on the border with Serbia, was also in the hands of the government troops.

Blagoja Markovski, a spokesman for the Macedonian Army, told MIA news agency that troops had entered the two villages on Friday evening.

Shpati and Markovski did not give any casualty figures.

Reuters reporters in the area, prevented from coming close to Vakcince, said it appeared quiet on Saturday but added that the neighboring village of Slupcane, another rebel stronghold, was under heavy artillery fire.

"We have taken civilians from Slupcane and Orizari and brought them to Lipkovo," Shapti said. "Their presence made it harder for us to fight."

The rebels have consistently denied government charges that they used civilians, mostly ethnic Albanians, as human Shields.

The army has insisted that only the presence of civilians and the grave political impact of major bloodshed had prevented it steamrollering the lightly-armed rebels.

A high death toll could precipitate the breakup of the national unity government, formed two weeks ago, which has been holding the republic together and staving off the threat of a civil war that could enflame the Balkans again.

****Villagers Start to Leave*****

The rebels have said seven civilians have been killed in this months of fighting in the northeast -- six members of one family in Slupcane and one man in Orizare.

Despite numerous appeals from the government, some 10,000 villagers, estimated to be in the area before the fighting started, have stayed put. They sheltered in basements under heavy artillery, helicopter and tank bombardment.

But the ground assault appeared to be the last straw.

About 2,000 refugees fled north into Serbia and 1,000 or so more left Vakcince on Friday.

Fighting on Friday prevented red cross medical teams from reaching the area.

"We need a cease-fire but so far it has not been possible to get this security guarantee," said Annick Bouvier of the International Committee of the Red Cross (ICRC). "We want to get in to assess the situation and evacuate any injured."

Commander Shpati said the NLA wanted the Red Cross to help them take civilians to Kosovo.

"We will then be in a much better position to fight," he said. "We will continue the war and expand our territory."

*** Coalition Still Alive***

In the capital, Skopje, political leaders met on Friday to repair relations between Macedonian Slav and ethnic Albanian parties, strained to near breaking point by a "peace deal" the Albanians concluded in secret with a guerrilla political chief.

The meeting was inconclusive but conciliatory, and the coalition which Western powers see as Macedonia's only chance of averting civil war was still breathing.

The secret meeting had so outraged some Slav political leaders that prime minister Ljubco Georgievski said "no mercy" could be shown to the rebels now.

Military analysts said it might take weeks to drive a motivated guerrilla force of several hundred fighters from the area.

Diplomats said the Macedonian Slav leadership was prepared to accept that the two Albanian party chiefs had made an honest error of judgement in meeting the guerrilla representative, but they had to publicly renounce their peace document.

So far neither has done so.

The European Union and NATO countries slammed the pact as an inadmissible legitimization of violence. The man who engineered it, OSCE Balkans envoy Robert Frowick, was "asked politely to leave" Macedonia, the foreign minister said. Meanwhile, another report by Reuters from Pristina said, the commander of an ethnic Albanian rebel group turned himself in to NATO-led peacekeepers in Kosovo early on Saturday, saying "It's time to stop the war", a spokesman for the Kfor mission said.

Shefket Musliu, commander of the National Liberation Army of Presevo, Medvedja and Bujanovac (UCPMB), along with two other guerrillas and the group's political officer Jonuz Musliu came to the boundary between Kosovo and the rest of Serbia early on Saturday morning.

The four were released after they agreed to give up their armed struggle, Captain Dan Byer said.

Musliu was dressed in civilian clothes and unarmed when he turned himself in. He had just come from the funeral of Ridvan Qazimi, commander "Lleshi," another guerrilla commander killed by Yugoslav forces on Thursday during a NATO-backed operation to take back control of a buffer zone used by the rebels.

"I can say we've turned in our weapons and it's time to stop the war," Musliu said in a media statement issued by U.S. peacekeepers who control the part of Kosovo where guerrillas are turning themselves in.

"I hope now all children in all villages can go to school," Musliu said in the statement.

On Friday, peacekeepers detained 16 members of the guerrilla group after they turned themselves in along with five trailer loads of weapons.

A wider Kfor amnesty offering immediate freedom to any guerrillas turning themselves and their weapons in expired on Thursday.

It was not immediately clear why Musliu and his group were released after the amnesty policy had expired. Byer said he did not know whether some sort of deal had been made with Musliu as commander of the guerrilla group.

"He was let go under the soft policy," Byer said. "He was screened and released."

Musliu signed an agreement with Serbian Deputy Prime Minister Nebojse Covic last Monday pledging to disband his forces by the end of the month, paving the way for Thursday's return of Yugoslav armed forces to the Presevo valley area of southern Serbia.

More than 450 guerrillas took advantage of the total amnesty before Thursday's deadline.

On Friday, Kfor's political adviser Shawn Sullivan said the ethnic Albanian community in the Presevo valley had decided to continue the process of demilitarization of the UCPMB, "especially in the light of yesterday's incident in which one of their commanders was killed."