By Jason Webb

MADRID, April 21 (Reuters) - Once-formidable Basque rebels ETA are in steep military decline, their leaders jailed and their use of violence shunned, but dreams of independence from Spain will continue to shape Basque politics.

Despite issuing regular threats, ETA seems not only unable to carry out sustained bombing campaigns but also incapable of keeping its leaders safe for more than a month or so, with the weekend arrest of Jurdan Martitegi bringing to four the number of commanders caught in less than a year.

Constant arrests together with a lack of political success have fuelled debate within rebel ranks about whether they should give up their guerrilla war for independence, according to both the government and journalists with contacts in Basque separatist circles.

"Nothing does more to undermine the will to carry on with violence than the difficulty of carrying out sustained series of attacks and the capture of its most important leader," wrote Florencio Dominguez in Basque newspaper El Correo.

"The demoralisation is increasing in the world of ETA, including its prisoners," Dominguez wrote, referring to a series of reports of complaints by ETA prisoners held in Spanish jails about the futility of the armed struggle.

ETA's military losses are being accompanied by political setbacks. Its allies were banned from regional elections in the Basque Country last month, but the number of spoilt ballot papers, a common guide to the strength of its support among the population, fell by a third from previous votes to 100,000, equivalent to about 10 percent of the Basque electorate.

At the same time, support for Aralar, a party which favours independence but condemns violence, rose sharply to 6 percent.

"What is falling is not so much the level of political support for the ideas of the 'abertzale' left," said Carlos Barrera, a politics professor at the University of Navarra, using the Basque language term for the independence movement.

"What has fallen is support for violence," Barrera told Reuters.

MOST BASQUES STILL FAVOUR INDEPENDENCE

The Euskobarometro, a regular poll of political opinion in the Basque Country, showed late last year that 30 percent of Basques were strongly in favour of independence and another 31 percent slightly in favour. Only 25 percent were against.

In the Basque elections, the moderate Basque Nationalist Party (PNV) lost control of the regional government to the Socialists, who support union with Spain, for the first time in almost 30 years thanks to a coalition deal.

But the PNV, which used its time in government to spread the use of the unique Basque language, actually boosted its vote and remained the biggest political party in the region, which already has considerable autonomy over areas such as health and education.

ETA has killed more than 800 people since its first attacks in the Spain of late dictator Franco in the 1960s, at a time when the Basque language and culture were suppressed in favour of Castillian Spanish.

Separatist disenchantment with violence grew after ETA wrecked peace talks with Spain's Socialist government in December, 2006, by planting a bomb at Madrid's Barajas Airport, killing two people.

But tolerance for ETA had been waning since the widespread revulsion caused by Islamist train bombings in Madrid in 2004, Barrera said.

Now, even some of ETA's key allies from its banned political wing Batasuna are reportedly considering ending the struggle.

Key among them is Batasuna leader Arnaldo Otegi, according to Basque expert Juan de Frommknecht on his blog, who said the government will demand a definitive break with violence in return for allowing Otegi and others to return to legal politics.

"Otegi knows that this time they have to make the first move, and that the only move then can make is this," de Frommknecht wrote.

"The definitive abandonment of the armed struggle by all or a large part of the ETA terrorist organisation."

But, even in decline, ETA can still do damage.

"The internal pressure and squabbles over whether to keep killing might actually provoke them to try even harder to pull off a high profile attack," Frommknecht said.

(Reporting by Jason Webb; Editing by Angus MacSwan)

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