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(Adds quotes from Colombia negotiator and FARC, details)

* Accord to bring “radical transformation” in rural areas

* Talks will move on to issue of FARC political

participation

* Negotiations will resume June 11 in Havana

By Jeff Franks

HAVANA, May 26 (Reuters) – Colombia and the Marxist-led FARC

rebels have reached agreement on the critical issue of agrarian

reform, the two sides said on Sunday in what appeared to be a

major step forward for the peace process aimed at ending their

long war.

They said the accord called for the economic and social

development of rural areas and providing land to the people

living there, which addresses one of the main issues that led

the FARC, or Revolutionary Armed Forces of Colombia, to form in

1964 as a communist agrarian reform movement and launch its

insurgency.

Lead government negotiator Humberto de la Calle reminded

that the agreement would only take effect if an overall peace

accord is achieved, which has been the guiding principal of the

talks since the beginning.

“Nothing is agreed until everything is agreed,” he said.

But he added it would represent “a historic change, a

rebirth of the Colombian countryside.”

The government promised to build up services and

infrastructure in rural areas as it tries to end the country’s

long history of social and economic inequality.

“What we have agreed to in this accord will be the

beginning of radical transformations in the rural and agrarian

reality of Colombia, with equity and democracy,” said the joint

statement, which was read at the end of the ninth round of the

talks that began Nov. 19 in Havana.

The rebels warned that “certain points” in the agrarian

reform accord “necessarily will have to be retaken before the

completion of the final agreement,” but said a path was being

opened for “the people to act, to mobilize themselves in defense

of their rights.”

It was not disclosed how much land would be given out. De la

Calle said there would be “an ambitious program of restitution

and adjudication of lands” to the rural poor, but that private

landowners would not lose their property

“Legal landowners have nothing to fear,” he said.

The agreement was the most hopeful development yet in the

peace process, but many potential obstacles remain, starting

with the next agenda item – the delicate subject of political

participation for the FARC.

More than 100,000 people have died and millions have been

displaced in the war that is now Latin America’s longest-running

insurgency and goes on at a low intensity even as the peace

discussions continue.

Many Colombians feel the rebels must face justice for war

casualties, the use of kidnappings to extort money and

involvement in the illicit drug trade, the latter a charge the

group has denied.

But criminal charges and jail time could exclude many FARC

leaders from taking part in politics.

The rebels have said they are willing to “review” any

“error” committed during the war, but have ruled out prosecution

by a state they say they legitimately rose up against for

persecuting and neglecting its own people.

Other remaining agenda points include the logistics of

ending the conflict, the drug trade, compensation for victims

and the implementation of the final accord.

President Juan Manuel Santos, who recently hinted that he

plans to run for re-election in 2014, has said he wants the

talks ended this year.

Santos initiated the peace talks last year on a bet the FARC

had been so weakened by the government’s 10-year, U.S.-backed

offensive against the group that its leaders are ready to

negotiate an end to the fighting.

Three previous peace attempts, the last ending in 2002, have

failed.

The rebels have been pushed into remote corners of the

country but are still able to attack oil and mining operations

that are fueling Colombia’s economic growth.

The war has diverted billions of dollars from the economy as

industry is unable to function at full capacity and the

government is forced to spend heavily on troops and weapons.

Even if peace with the FARC is achieved, the government

still must deal with a smaller rebel force, the ELN or National

Liberation Army, and criminal gangs running drug-trafficking

operations.

The ELN, with an estimated 3,000 fighters, has expressed

interest in seeking a peace accord similar to the one being

pursued with the FARC, but Santos has said it must first release

captives who include a Canadian citizen.

Norway and Cuba are serving as guarantors for the

Colombia-FARC talks, with Chile and Venezuela as observers.

The discussions are set to resume in Havana on June 11, a

government spokesman said.

(Reporting By Jeff Franks; Editing by Sandra Maler)