* Ruling upholds 2011 appeal court decision
* Former translator brought the case more than decade ago
* Paves way for compensation, possible peacekeeping rethink (Adds reaction, quotes, details)
By Anthony Deutsch
AMSTERDAM, Sept 6 (Reuters) - The Dutch state is responsible for the deaths of three Bosnian Muslim men ordered to leave a U.N. compound in the 1995 Srebrenica massacre, the Dutch Supreme Court said on Friday, in a ruling that may impact future peacekeeping missions.
Hasan Nuhanovic, who worked as a U.N. translator during the Balkan wars, filed the case against the Dutch state more than a decade ago, seeking justice for the murders of his mother, father and brother.
The case is the first time Dutch have formally been held accountable for the failings of soldiers in a foreign peacekeeping mission and could pave the way for a flood of compensation claims.
Dutch troops were in charge of a U.N. "safe area" when Bosnian Serb forces overran it in 1995 and killed 8,000 Bosnian Muslim men and boys in the Srebrenica genocide, Europe's worst massacre since World War Two.
Dutch forces would not allow Nuhanovic relatives to stay on the base because only he was employed by the United Nations. The court ruled on the deaths of his younger brother, father and another man. His mother's case was dropped.
The failed operation was a painful episode in Dutch international affairs and led to the resignation of Labour Prime Minister Wim Kok's government in 2002.
Dozens of Dutch peacekeepers in a mission known as Dutchbat, and operating under a U.N. flag, were outgunned and outmaneuvered by the Bosnian-Serb troops.
The Dutch soldiers, many of whom feared for their own lives, helped the attacking Bosnian-Serb troops as they separated Muslim men from women. The men and boys were then bussed to execution sites.
"Dutchbat decided not to evacuate them along with the battalion and instead sent them away from the compound," a summary of the supreme court ruling said.
"Outside the compound they were murdered by the Bosnian-Serb army or related paramilitary groups."
Nuhanovic welcomed the Supreme Court's decision as he stood in the court in The Hague, where survivors of the massacre hugged and wept.
"In the future, countries might act differently in peacekeeping missions and I hope the lives of other people in the future will be saved because this mistake was admitted," Nuhanovic said.
The Supreme Court upheld an appeals court ruling from 2011, which ordered that the relatives of the victims be compensated but did not state the amount.
The verdict, which is final, could make other states reluctant to participate in foreign military operations if their troops can be held responsible when things go wrong.
"The Supreme Court has held that public international law allows conduct to be attributed not only to the United Nations, which was in charge of the peace mission, but also to the state because the latter had effective control over the disputed conduct of Dutchbat," it said.
Liesbeth Zegveld, the Dutch lawyer who represented the victims, told reporters the decision had important implications.
"The most important conclusion is that a U.N. flag doesn't give you immunity as a state or as an individual soldier," she said. (Additional reporting by Svebor Kranjc in The Hague; Editing by Alison Williams)