By Patrick J. McDonnell and Chris Kraul
Los Angeles Times Staff Writers

BOGOTA, COLOMBIA — The sensational rescue of 15 hostages from the grip of Latin America's largest rebel group has highlighted the diminished state of an organization that just six years ago threatened to overrun the Colombian government.

Once fueled by Marxist ideology and awash in narcotics profits, the Revolutionary Armed Forces of Colombia, or FARC, now finds itself facing a more robust Colombian military led by a popular president. The group has suffered the deaths of top leaders, seen large-scale defections of supporters, and is being squeezed for the money it needs to sustain its operations.

Now the FARC has lost its trophy hostages: ex-presidential candidate Ingrid Betancourt and three U.S. defense contractors whom the rebels viewed as human shields against all-out government attacks. The nature of the rescue mission -- in which government agents posed as rebels and freed the hostages without firing a shot -- was widely seen as a deep humiliation and public relations disaster for the FARC.

Security officials warn that the rebel group retains some sting. The number of militants has dropped by about half in the last decade, but it still has about 10,000 armed guerrillas spread from the Caribbean to the Amazon jungle. And it continues to hold 700 hostages, bargaining chips that preclude a quick end to the group's 44-year-long insurgency.

But President Alvaro Uribe's strategy of aggressively taking the fight to the FARC, backed by a $5-billion U.S. aid package, appears to have seriously degraded the rebels' ability to challenge the state.

Uribe took office in 2002 as the Colombian capital was virtually encircled by FARC forces. A missile and mortar attack marred his inauguration.

He has bolstered the number of government troops by 40% while greatly improving surveillance abilities. Troops have disrupted logistics and killed or captured numerous key FARC lieutenants, leaving guerrillas beleaguered and demoralized.

"Every time we looked up, there was the army," Nelly Avila Moreno, a 24-year FARC veteran and renowned guerrilla leader known as Karina, told interrogators after surrendering in May. "We were totally besieged."

The FARC has also seen a drastic decline in support among average Colombians, even with its traditional bastions of peasants and leftists.

"You couldn't confide in the people [any longer] because they would betray you," Avila said.

The FARC no longer controls any significant towns and has been reduced to bands operating in isolated redoubts with fragmented central command, according to intelligence officials. They contend that recruitment is down and that tensions with civilians have risen as the FARC seeks younger recruits, some as young as 13, while forcing urban sympathizers to join rural combat units.

Defectors also say that mid-level commanders live in fear of being turned in by fighters for hefty ransoms offered by the Colombian government. In one notorious case this year, a guerrilla killed his superior in return for a government payout, providing authorities with the slain leader's bloody hand as proof of his treachery.

"You may have a lot of fighters at your side, but you never know what they are really thinking," ex-guerrilla leader Avila told journalists after she turned herself in.

The FARC, she said, was "crumbling."

The group's cash-flow woes seem to be a paradox considering its revenue from Colombia's booming cocaine trade, which the FARC long ago embraced, along with kidnapping, as means to finance its war. But a crackdown on exchange houses used by the group to launder money has sapped available cash, according to a U.S. intelligence source.

In some cases, the FARC has been reduced to using chits instead of cash to pay cultivators of the coca leaf, from which cocaine is made, a Colombian intelligence officer said.

Officials say low-ranking fighters are bearing the brunt of the cash shortage. Defectors and ex-hostages have described a lack of basics such as food, boots, uniforms and other items in the far-flung encampments.

"Mid-level commanders who control the money are giving up and fleeing with the cash," said Gen. Freddy Padilla, the Colombian armed forces' chief of staff.

This week's daring snatching of the hostages away from their captors has led some observers to herald the imminent demise of the rebel group.

"The FARC are a painful inheritance of the Cold War," wrote Patricio Navia, a Chilean political analyst. "We must celebrate that their end now appears near reality."

Others are more cautious. "The FARC continues to be an organization that represents a significant threat, with a significant capacity to do damage," said Alejo Vargas, a political analyst. "It maintains the essential guerrilla structure, which cannot be minimized."

But few see the FARC regaining its lost ground or coming anywhere near achieving its goal of military victory and imposition of some form of communist state. Even former supporters now are increasingly calling for peace talks focusing on fighters' reintegration into society.

Venezuelan President Hugo Chavez, who has denied allegations of bankrolling the FARC, recently called on the group to release all hostages and seek peace talks, without conditions.

"There's no doubt that the FARC has received big blows in the past four years, and this year has been the worst, especially from a public relations perspective," said Vargas. "It would be healthy for its leadership to show some practical sense and see that the most viable option would be a negotiated exit."

Uribe has been open to talks but without FARC preconditions. He long ago rejected earlier government strategies that ceded a Switzerland-sized swath of territory to FARC dominance. The failure of FARC leaders to negotiate seriously then cost them significant public support.

Now Uribe faces a rebel movement that is diminished in strength and struggling with internal divisions.

Some analysts describe a fissure in the FARC since the death this year of long-time leader Pedro Antonio Marin, known by aliases Manuel Marulanda and "Sureshot," who founded the group in 1964. FARC-watchers speculate that his successor, Alfonso Cano, a one-time anthropology student who lacks Marin's peasant pedigree, does not have the rank-and-file support of the legendary founder.

Defectors have described semiautonomous guerrilla bands operating with little direction from top-level commanders. Avila, the operative of the FARC's Front 47, said she had been out of touch with her commanders for more than two years.

Compounding the rebels' isolation is their fear of U.S.-supplied eavesdropping equipment, which has forced commanders to abandon radios, satellite phones and computer communications in favor of couriers who must sometimes travel long distances to deliver messages. That lack of communication was exploited in this week's rescue mission, in which rebels holding the hostages were duped into thinking the captives were being taken to see FARC chiefs.

The leadership's next step remains uncertain. A radio station that often broadcasts rebel views said this week that the group would be open to peace talks with the government. And the Anncol news agency, often seen as a barometer of the FARC's thinking, was quoted from its website by Agence France-Presse as calling for peace.

"Definitely the future of Colombia cannot be civil war," read the Anncol statement. "We call for common sense and to make room for peace."

But officials in Bogota are skeptical that real negotiations are possible anytime soon.

"The FARC is recalcitrant, we'll have to punish them a lot more," said Colombian Gen. Padilla. "They are not prepared to negotiate. Partly because the leadership is split and in disarray. Partly because the leadership doesn't yet see the reality of their difficulties, unlike the soldiers who are living the war every day and are increasingly deserting."

Andrés D'Alessandro of The Times' Buenos Aires Bureau contributed to this report.