By Lizbeth Diaz

TIJUANA, Mexico, Oct 1 (Reuters) - Mexico and the United States are claiming a major breakthrough in the drugs war, citing record lows in U.S. cocaine supplies, a drop in gangland murders and the capture of several powerful traffickers.

The average price of a gram of cocaine on U.S. streets rose 24 percent between January and June to $118.70, its highest level in at least five years, because of supply shortfalls, U.S. anti-drug officials say.

Cocaine purity fell 11 percent in the same period, signaling that less of it is entering the United States.

"This impact is historic, this is real progress," said Rafael Lemaitre, a spokesman for the White House Office of National Drug Control Policy.

John Walters, the White House's "drug czar", is due to announce the figures on Tuesday in San Diego, California.

Some U.S. and Mexican law enforcement agents now predict the cocaine trade across the border will go into a long-term decline, in contrast to a booming market for the drug in Europe.

But similar claims of success in the past have proven short-lived as Colombian and Mexican drug lords found new routes for South American cocaine into the United States.

Still, an army crackdown on drug gangs by President Felipe Calderon does seem to be hurting the Mexican smugglers who ship most of the cocaine northward.

Calderon has sent some 25,000 troops to try to bring order to areas where the drug gangs are strong, like the western state of Michoacan, since he took office last December.

"The military operations are causing a breakdown in control of the cartels, which in turn has broken down the narcotics delivery chain into the United States," said Victor Manuel Zatarain, a senior police intelligence chief in Tijuana.

The city, 20 miles (32 km) from San Diego, is home to a cartel that runs drugs up the Pacific coast and over the land border into California.

Under Calderon's crackdown, executions between Mexican rival gangs have dropped from a peak in March when dozens of bodies a day were being found.

Nevertheless some 2,000 people have been killed so far this year in turf wars mainly between the Gulf Cartel and an alliance of traffickers from Sinaloa state.

Mexico has extradited some of the country's most prominent traffickers to the United States so far this year, including Osiel Cardenas, head of the notorious Gulf Cartel based just south of Texas. Mexican police caught top woman smuggler Sandra Avila, known as the "Queen of the Pacific," last week.

LYING LOW

A source close to the Gulf Cartel says the drug gangs are only lying low, avoiding the kind of high-level murders that provoked the army crackdown.

"The Gulf Cartel took a decision to stop the violence. It was attracting too much attention and getting in the way of business," the source said in the border city of Matamoros.

The United States is aiding Mexican efforts with better surveillance along its coasts, causing a sharp rise in cocaine seizures along the Pacific and in Florida this year.

Mexico City and Washington say anti-drug cooperation is the best in decades and that it allowed police to confiscate $206 million in March from a mansion in the Mexican capital, a haul officials say is the world's biggest drug cash seizure.

But some officials and drug trade experts warn that the cartels are quickly regrouping, while sheriffs in Texas and sources close to the cartels say Mexico's army operations have splintered gangs into smaller groups that can be harder to catch.

"As cartel leaders are captured, other high-ranking members of the organization step up and take their place. The cartels, particularly the Gulf Cartel, remain strong. The story is not over yet," said Michael Sanders, a Washington-based special agent at the U.S. Drug Enforcement Administration.

A military crackdown in Tijuana in January has meanwhile fizzled out due to a lack of intelligence, local police say.

Smaller, violent trafficking gangs are appearing in Ciudad Juarez, which borders El Paso in Texas, as the Juarez cartel loses power, and at least six organizations now vie for smuggling routes.

"What you are battling against is this: how many people does it take to run a trafficking outfit? It doesn't take thousands, not even hundreds of people," said Robert Almonte, president of the Texas Narcotic Officers' Association. (Additional reporting by Robin Emmott in Monterrey)

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