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* Kosovo marks fifth anniversary of secession
* Signs of progress in EU-mediated talks
* Serbia under pressure to cooperate with ex-province
By Fatos Bytyci
PRISTINA, Feb 17 (Reuters) - Kosovo marked five years since it seceded from Serbia on Sunday, with flag-filled streets, a military parade and growing signs of progress in EU-mediated talks to regulate relations between the Balkan neighbours.
Majority-Albanian Kosovo declared independence in 2008 with the backing of the Western powers which waged a NATO air war in 1999 to wrest control of the territory from late Serb strongman Slobodan Milosevic.
Recognised by roughly half the world but not yet a member of the United Nations, Kosovo is one of the poorest countries in Europe, its government still challenged by minority Serbs in the north who reject the secession.
But Western diplomats say a new push by EU foreign policy chief Catherine Ashton to 'normalise relations' between Belgrade and Pristina, and integrate the north, is bearing fruit.
"We are seriously committed to normalising relations with Serbia," Hashim Thaci, Kosovo's prime minister and a former guerrilla commander, told reporters. He and his Serbian counterpart, Ivica Dacic, meet again in Brussels on Feb. 19-20.
"We will move swiftly towards membership of NATO and the European Union, but also the United Nations," Thaci said.
The national flags of Kosovo, Albania and the United States flew from lampposts and balconies in the capital, Pristina.
Members of the Kosovo Security Force, an embryo army, marched through the city, where huge yellow letters spelled the word 'Newborn' and were painted with the flags of the 98 countries so far to have recognised Kosovo.
Serbia says it will never join them, while its ally Russia, a veto-holder in the U.N. Security Council, stands in the way of Kosovo winning a seat at the United Nations.
PULL OF EU
But Serbia is under pressure from the EU to cooperate with its former province and loosen its hold on the northern Serb pocket if the bloc is to move ahead with Belgrade's bid to join.
With fellow ex-Yugoslav republic Croatia set to join the EU on July 1, Dacic's government has signalled greater flexibility on Kosovo, determined to clinch EU accession talks within months and send a signal of stability to much-needed foreign investors.
"Over these five years Serbia has understood the reality of the situation in Kosovo," Nenad Djurdjevic of the Belgrade-based Forum for Ethnic Relations told the Serbian news agency Tanjug.
"The previous government understood that, but didn't say it, while the current government admits that Serbia has no influence in Kosovo and must resolve relations with that Kosovo."
The EU-led talks have yielded agreement on the exchange of liaison officers to improve communication and joint management of their border, including a customs regime. Belgrade has also agreed to recognise Kosovo vehicle licence plates, identification papers and university diplomas.
Implementation has sometimes been patchy, and the talks have yet to resolve the thorny issue of the Serb north.
NATO still has a 6,000-strong peacekeeping force in Kosovo, almost 14 years since it went to war to halt the massacre and expulsion of Albanians by forces under Milosevic fighting a two-year counter-insurgency campaign.
Tensions in the north, and a stubborn reputation for graft and organised crime, have hurt Kosovo's efforts to attract foreign investors and create jobs for its young population of 1.7 million people.
"The only thing to be proud of is the young population and hope for the future," said Gazmend Gjonbalaj, 24, a U.S.-eduated IT engineer. "But it's shameful that our politicians are driving around 50,000-euro cars while much of the population does not have enough food on the table." (Writing by Matt Robinson; Editing by Jason Webb)