It was one of the most shameful episodes in the history of military peacekeeping. As Dutch troops stood by, Bosnian Serbs overran the "safe" United Nations enclave of Srebrenica in 1995 and massacred some 8,000 Muslim men and boys.

Enquiries exposed a litany of leadership failures but one of the problems, according to a US general, was that openly gay soldiers were serving in the Dutch military. The comments by General John Sheehan, a former Nato commander, sparked fury in the Netherlands yesterday.

The Dutch defence ministry said the claims were "absolute nonsense" and the country's prime minister, Jan Peter Balkenende, pitched into the fray, criticising the general for making "irresponsible" remarks.

"Toward Dutch troops - homosexual or heterosexual - it is way off the mark to talk like that about people and the work they do under very difficult circumstances," Mr Balkenende said.

The row started after the retired general, giving evidence to a US congressional committee, linked the role of gays in the Dutch military with the failure of its lightly-armed soldiers who were part of a UN peacekeeping contingent at Srebrenica in July 1995.

According to Gen Sheehan, the armed forces of some European nations "deteriorated" after the collapse of the Soviet Union because they believed they faced fewer threats.

"They declared a peace dividend and made a conscious effort to socialise their military - that includes the unionisation of their militaries, it includes open homosexuality," he told the committee, which was hearing evidence about whether the US should lift its ban on openly gay men and women serving in the armed forces.

The Dutch troops were ill-equipped for war, the general said, adding: "The battalion was under strength, poorly led and the Serbs came into town, handcuffed the soldiers to the telephone poles, marched the Muslims off and executed them."

Pressed on his suggestions, Gen Sheehan, who retired in 1997, claimed Dutch leaders had told him that gay soldiers were "part of the problem". Dutch officials were furious, saying extensive investigations into the massacre had uncovered no evidence for his claims. Wim van den Burg, head of the Dutch armed forces union, the Algemene Federatie van Militair Personeel, said Gen Sheehan's comments were "out of the realm of fiction".

The Srebrenica massacre, the worst since the Second World War, was blamed on a string of blunders, inaction and leadership failures. UN officials refused to sanction air strikes and diplomats dithered about what action to take while cold-blooded mass executions went on for weeks, littering the countryside with mass graves. A war crimes judge later described the killings as "scenes from hell, written on the darkest pages of human history".

The massacre and the failure of Dutch forces to respond - and even assist with the evacuation of the men and boys - remains a highly sensitive topic in the Netherlands. The publication of a highly critical report after a six-year inquiry led to the fall of the government in 2002.

The chairman of the US committee was critical of Thursday's testimony. Senator Carl Levin told Gen Sheehan he agreed that the Dutch had failed as "peace enforcers" but added: "What the heck that has to do with the issue before us is what mystifies me."