Workers lay out the red carpet for the opening ceremony

Around 100,000 visitors are due at the eight-day event with special guests including French actor Gerard Depardieu and US actor John Malkovich.

Organisers hope the event will bring much-needed investment into Bosnia.

The first festival was held during the Bosnian civil war in the besieged city, under shell and sniper fire.

When you go to Sarajevo what you experience... is life Mike Leigh Film director

The festival began with the world premiere of Days and Hours by Bosnian director Pjer Zalica, one of four premieres due to be shown, AFP news agency reports.

Nine films from Albania, Bulgaria, Croatia, Macedonia, Romania, Slovenia and Serbia and Montenegro will compete for awards.

Other festival guests include US rap singer Coolio.

The event is now the main showcase for film directors from south-east Europe, the BBC's Nick Hawton reports from Sarajevo.

Positive image

During the war, festival films were smuggled in through an underground tunnel.

Mike Leigh, the UK film director who presides over the festival jury, told the BBC the festival was "very much a symbol of Sarajevo's regeneration".

"When you go to Sarajevo what you experience... is life," he told the World Today programme.

The director of the festival, Mirsad Purivatra, said it was not only filmgoers who would benefit from the 180 films on show but Bosnia, which would project a "very positive image" abroad.