Milicevic returns to the club he last played for in 2001, since when he went on to turn out for FC Zurich, Basel (loan), FC Thun, Young Boys, Melbourne Victory, Newcastle Jets and Hajduk Split.
"Ljubo made contact about 10 days ago," Glory coach Alistair Edwards said. "And obviously that triggered our interest as he's a quality player and a former champion player of the club.
"I discussed it with (fellow coaches) Gareth (Naven) and Scott (Miller) and we were all unanimous in saying that it would be great to have him back here.
"I believe it's a good fit for Ljubo and a good fit for the club."
Milicevic played alongside Edwards, Naven and Miller in his first spell with the club, and Edwards is well aware of the 32-year-old's talents.
"He is an exceptionally gifted player," said Edwards.
"When he was here as a 19-year-old, Gareth was captain of the club and Scott and I were vice-captains so he knows us well and we know him well.
"We were in the twilight of our careers then and we helped him a lot in terms of his development.
"I've had many discussions with him regarding the way we do things around here and we focused on how, when he came to the club as a young man, the culture that we had here at Glory at that time really helped his development.
"We've now re-created that same environment, but this time he's an experienced player not a 19-year-old.
"He's the Gareth Naven or Scott Miller of yesteryear and he has the responsibility not only to fit into the culture, but to remember that when he was at the same age as many of our current young players, how that culture helped him develop."
Edwards is also confident that the club's new signing will let his football do the talking.
"He's had his issues down through the years," he said, "but although we're mindful of those issues, we're not going to dwell on the past.
"We're a forward-thinking club and we are looking at the many positives that he's going to bring to our culture.
"We want him to just concentrate on playing football and assisting us in moving the club forward with all the experience that he can bring.
"The fans of Perth Glory should be excited again because he's a very experienced player who is going to improve us as a club going forward."