Dinamo vice-president Zdravko Mamic met Newcastle representatives at the city's Malmaison hotel this week for talks over the playmaker who will be a key member of Slaven Bilic's Croatia side at Euro 2008.
Modric had also been linked with Barcelona, but his compatriot, Portsmouth's Niko Kranjcar, recommended that he move to the Premier League.
Modric underlined his potential during the Euro 2008 qualifying campaign and was instrumental in the 3-2 defeat of England at Wembley in November.