  We report on a study of $\bar{B^{0}} \to D^{(*) 0} \pi^+ \pi^-$ decays using
29.1 fb$^{-1}$ of $e^{+}e^{-}$ annihilation data recorded at the $\Upsilon(4S)$
resonance with the Belle detector at the KEKB storage ring. Making no
assumptions about the intermediate mechanism, the branching fractions for
$\bar{B}^0 \to D^0 \pi^+ \pi^-$ and $\bar{B}^0 \to D^{* 0} \pi^+ \pi^-$ are
determined to be $(8.0 \pm 0.6 \pm 1.5) \times 10^{-4} $ and $ (6.2 \pm 1.2 \pm
1.8) \times 10^{-4}$ respectively. An analysis of $\bar{B^{0}} \to D^{0} \pi^+
\pi^-$ candidates yields to the first observation of the color-suppressed
hadronic decay $\bar{B}^0 \to D^0 \rho^0$ with the branching fraction $(2.9 \pm
1.0 \pm 0.4) \times 10^{-4}$. We measure the ratio of branching fractions
${\mathcal B}(\bar{B^0} \to D^0 \rho^0) / {\mathcal B}(\bar{B^0} \to D^0
\omega)$ = 1.6 $\pm$ 0.8.
