The agreement should regulate the prosecution of war crimes committed in the 1990s, including the issue of indictments which the former Yugoslav army filed against Croatian citizens and which occasionally arrive from Serbia.
Serbian Justice Minister Nikola Selakovic said there were legal obstacles to signing the agreement in its present form.
Speaking at a joint news conference with his Croatian counterpart Orsat Miljenic, Selakovic said that under Serbian law, the court for war crimes in Belgrade had jurisdiction over the entire Yugoslavia.
Miljenic said the draft agreement was a good foundation for solving the issue. "We realise the limits in Serbia, which is why we moved an agreement that is above (national) law."
The two ministers said it was good to discuss this and that there were no longer banned topics in Croatian-Serbian relations.
"Sometimes we don't agree on anything but we at least agree that we don't agree on something. That was lacking in the past," said Selakovic.
"We will agree on some things and not on others. That's why it's important to discuss some other models," added Miljenic.
The two ministers also discussed an agreement on the enforcement of sentences, succession to the former Yugoslavia, ownership issues and the sharing of Croatia's experience in accession negotiations with the European Union.
Reporters asked Selakovic which water he drank at the meeting in Zagreb, alluding to an incident when, as an assistant at Belgrade's law school, he took a female student's bottle of Croatian water during class and threw it in the trash, saying he was doing so because it was not domestic Serbian water.
"I drank Croatian water, of course. When you come to Belgrade, I invite you to drink one of our waters," he said.