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Under the deal Bosnia is preserved as a single state but it is divided into two parts.
It will be made up of a Muslim-Croat federation representing 51% of the country's territory and a Serb republic holding the remaining 49%.
Sarajevo will become a unified city with Serbs giving up some suburbs which they currently control.
The so-called "safe-enclave" of Gorazde will remain under Muslim control but it will be linked by a land corridor to Sarajevo.
The three leaders signed the deal surrounded by European heads of state in a Parisian palace before 50 world leaders and international organisation chiefs.
Serbia's Slobodan Milosevic said the country had been an outcast for too long.
He said: "As to the implementation of the peace agreement and the role of the international peace force, the key of the success of its mission is even-handedness, just as partiality is the key of failure."
Croatia's Franjo Tudjman spoke of his aim for closer ties between his people and the European Union.
And Bosnia's Alija Izetbegovic, referring to his dream of a multi-ethnic Bosnia said he felt he was "drinking a bitter but useful medicine".
The deal was driven by President Clinton's team and Nato will move into protect the area - with overriding power - as a temporary measure.
The success of maintaining the deal will determine aid for the war-torn country where at least 200,000 people have died in the bloodiest conflict seen in Europe since World War II.
Several million people have been left homeless - some the result of so-called ethnic cleansing operations. Many other refugees fled the country rather than get caught up in the fighting.
The American president told the summit that it was up to the three leaders and their people to ensure peace.
"No one outside can guarantee that Muslims, Croats and Serbs in Bosnia can come together and stay together as free citizens in a united country sharing a common destiny," President Clinton said.
"Only the Bosnian people can do that."
Despite the Dayton Summit which formally ended the conflict, tensions remain between the three Balkan neighbours.
But things improved when the political landscape of the region changed.
Alija Izetbegovic stepped down in 2001, Slobodan Milosevic was put on trial at The Hague a year later for atrocities in the Balkans over a 10 year period and Franjo Tudjman died in 1999.
The countries' new government leaders are described as moderate.
They met for the first time since their predecessors signed the peace accords in 2002.
Many problems of the war persist - most importantly the fate of around 1.5m refugees and displaced persons.
An EU peacekeeping force replaced NATO in December 2004.
Official statistics released in 2005 revealed the number of dead in the Bosnian war was lower than first thought. An interim report said the death toll was probably nearer 100,000 than 200,000.
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