May 25 (Bloomberg) -- Colombia's largest rebel group today confirmed the death of its top leader, Manuel Marulanda, the latest blow to a Marxist-inspired insurgency that has been weakened by the demise of senior commanders and attacks by government troops.

The 77-year-old leader of the Revolutionary Armed Forces of Colombia, or FARC, died of a heart attack on March 26, one of his lieutenants, Timoleon Jimenez, said in a video sent to Venezuelan television station Telesur. A guerrilla known by his alias Alfonso Cano was named Marulanda's successor, said Jimenez, better known as Timocheko.

President Alvaro Uribe, who has received more than $4 billion in U.S. military aid since he was elected in 2002, yesterday said he hopes FARC's tribulations would prompt members to lay down their arms and free hostages, who include three American defense contractors. Marulanda's death was first revealed yesterday by Defense Minister Juan Manuel Santos.

``We're finally seeing the light at the end of the tunnel of a conflict that has cost our country so much,'' Santos said in a press conference today in Bogota. ``Hopefully Cano will come to his senses and knock on the door of peace, because if he does the government will be there to welcome him.''

Santos said he hoped Cano, an academic from Bogota whose middle-class background differs from FARC's peasant base, would opt for a negotiated settlement to the nearly half-century insurgency. Until that happens, he said military operations against the group would continue.

Santos Challenge

Santos challenged FARC to surrender Marulanda's body so an autopsy could be performed to back up its claim he died of natural causes and not from a bombing campaign by Colombia's military.

``We had him located and isolated,'' Santos said, adding that the date of Marulanda's death given by the FARC coincided with an attack on an area in Meta province where he was believed to be hiding. ``He was living a miserable life.''

Marulanda, who was known as ``Sure-shot,'' spent his entire adult life as a fugitive. He first took up arms in his youth as a member of Marxist-oriented peasant groups during a nine-year civil war between Colombia's two major political parties that ended in 1957. He went on to found the FARC in 1964.

Long after the capitulation of most of South America's guerrillas inspired by the 1959 Communist revolution in Cuba, he bolstered FARC's finances in the 1990s through kidnappings for ransom and involvement in Colombia's cocaine trade.

$5 Million Reward

In March 2006, the U.S. Justice Department announced a $5 million reward for his capture to face drug-trafficking charges along with 50 other indicted FARC leaders.

``Our commander blazed the trail and now it is with immense sorrow we inform he died March 26 in the arms of his companera and surrounded by his troops,'' Marulanda's lieutenant, Timocheko, said in the video.

Uribe, elected in 2002 on the promise to crush the group, has boosted troop strength by 44 percent and driven the group into a strategic retreat from Colombia's highways and major cities.

Thanks to the offensive, kidnappings fell by 83 percent to 486 last year and terrorist attacks by 76 percent to 387 in 2007, the Defense Ministry says.

The group's number dwindled to fewer than 8,000, from a peak of 15,000 in 2002, as desertions reached a record 2,480 last year, the Defense Ministry says.

The new leader Cano's real name is Guillermo Saenz. The 59-year-old former anthropology professor from Bogota is considered a hard-line ideologue at odds with commanders dedicated to drug-trafficking, Santos said.

Ecuador Incursion

Momentum against FARC has been building since March 1, when Colombian soldiers crossed into Ecuador and killed the No. 2 leader, Raul Reyes, in a pre-dawn raid. A few days later another member of FARC's ruling seven-person secretariat, known as Ivan Rios, was killed by a subaltern who delivered his severed hand to authorities.

Cano himself was believed to have been wounded in a helicopter attack and close to being captured, El Tiempo newspaper reported in March, citing unnamed military sources.

The succession of military defeats, which also include the defection last week of a top female commander, are sure to take a toll on the FARC's leadership, said Adam Isacson, a director at the Center for International Policy in Washington.

``The crystal ball is a lot cloudier today,'' said Isacson, who has led several U.S. Congressional delegations to Colombia over the past 10 years.

Convalescence

Isacson said Marulanda's long convalescence, combined with military pressure that has complicated communications, had become a major obstacle to decision-making in recent years.

With his death, he said the group could slowly disintegrate, as morale collapses and a power struggle ensues between Cano and other commanders spread across Colombia's mountainous, jungle- covered terrain.

An equally probable outcome, given the group's tenacity under fire, is that it coalesces around Cano, becoming more dangerous on the battlefield and taking steps to improve its international image. In either scenario, he said he doesn't expect the group to immediately seek peace talks or release the hostages.

``The only thing certain we can say is that this is a fork in the road and things are going to change,'' said Isacson. ``But the scenarios remain incredibly divergent.''

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net.

Last Updated: May 25, 2008 17:06 EDT