In a landmark ruling, the court said the state was to blame for the killing of two elderly Serb civilians after the Croatian military operation ‘Storm’ in 1995.
The judge in the town of Knin ruled that Croatia must pay 540,000 kuna (about 70,000 euro) to the children of Serb victims Radivoje and Marija Beric, who were killed in the village of Varivode after the Croatian army crushed Serb forces during the Operation Storm.
The ground-breaking ruling was the first time that the state has been held responsible for the killings of Serbs after the military offensive.
Unknown attackers murdered nine elderly Serbs including Radivoje and Marija Beric in their homes in Varivode on September 28, 1995, almost two months after military clashes ended.
It was one of the most notorious crimes committed by Croatian forces after Operation Storm.
Explaining the verdict on Wednesday, Knin court judge Jelec Pecirep said that "there's no doubt that nine elderly Serb civilians were killed in their homes, which the supreme court said was a terrorist act".
In a previous case, the court in Knin had rejected the Beric family’s claim for compensation, claiming that "it's impossible to establish the cause of the death" of the elderly couple.
But the supreme court annulled that decision in July last year, ordering a retrial and saying that "a terrorist act was perpetrated in Varivode, for which the Republic of Croatia was responsible".
"This is a small satisfaction. I hope the children of other victims will be encouraged with this verdict," the couple’s son Jovan Beric told media after the ruling on Wednesday.
Several Croatian soldiers have been tried for the Varivode killings but acquitted due to lack of evidence, and no one has yet been convicted over the nine Serbs’ deaths.
Last year, Croatian President Ivo Josipovic laid a wreath in front of a Serbian Orthodox cross built to commemorate the victims in the centre of Varivode, saying that the perpetrators must be punished and the families of victims compensated.
The Knin verdict came 18 years after the crime.
Eugen Jakovcic from the human rights NGO Documenta emphasised the importance of the verdict as a precedent, but said that "it is shameful that Jovan Beric had to hang around in courts for years to prove what is absolutely clear to everybody".
"The state prosecution didn't protect the right of the victims in this case, but the interests of the state budget," alleged Jakovcic, referring to the fact that the state prosecutor opposed paying compensation to Beric family for years.
Operation Storm saw Zagreb’s forces together with the Bosnian Army take parts of Croatia and Bosnia that had been under Serb control since 1991.