(Recasts with Uribe comment, adds details)

By Hugh Bronstein

BOGOTA, March 28 (Reuters) - Colombia launched an all-out effort to free politician Ingrid Betancourt on Friday, offering cash and reduced jail terms to leftist guerrillas in exchange for releasing her after years of captivity in jungle camps.

Betancourt, a French-Colombian national snatched by the rebels during her 2002 presidential campaign, is suffering from malnutrition and hepatitis B, according to Colombia's human rights ombudsman.

President Alvaro Uribe, a conservative U.S. ally, said his government will maintain a $100 million fund to pay rewards to guerrillas who free any of the hundreds of kidnap victims held by the Revolutionary Armed Forces of Colombia, or FARC.

"We will resolve their legal problems and offer financial compensation," Uribe said on Friday.

He signed a decree late on Thursday allowing for a mass release of guerrillas from jail if Betancourt, a 46-year-old mother of two, is set free.

The moves were meant to speed up efforts at swapping rebel-held politicians, police and soldiers for jailed guerrillas. The exchange plan has been bogged down in months of haggling over conditions.

"The immediate release of Betancourt would be enough for us to consider the humanitarian exchange underway, in that we would conditionally suspend the sentences of guerrillas who are part of the agreement," the government's peace commissioner, Luis Carlos Restrepo, said late on Thursday.

The FARC, which took up arms in the 1960s, is holding hundreds of hostages for ransom and political leverage, including three American anti-drug contractors captured in 2003. But Betancourt's case has drawn the most attention.

Colombia's Roman Catholic Church called on the FARC on Friday to release her and all other kidnap victims, describing it as an issue of life or death.

"We don't even know who to go to as the head of the FARC, so we are sending a general call out to all of them," a Church spokesman told reporters.

The FARC and the government have been deadlocked over conditions for exchanging dozens of high-profile hostages for rebels held in government jails.

BOMBING RAID

Despite hard lobbying for a hostage swap by the families of kidnap victims and the French government, an agreement appeared less likely after Colombia killed the FARC's No. 2 commander in a March 1 bombing raid carried out in neighboring Ecuador.

Colombia's human rights ombudsman, Wolmar Perez, said on Thursday that Betancourt's health was "very, very delicate."

Reports received by Perez's office say Betancourt appears malnourished and her skin is raw with infected insect bites.

Perez said she suffers from hepatitis B and last month was brought by the FARC to be treated at first aid stations in jungle towns controlled by the guerrillas.

The rebels, funded mainly by cocaine smuggling and extortion, freed six kidnap victims earlier this year in deals mediated by Venezuela's leftist president, Hugo Chavez.

But plans for a wider hostage swap are deadlocked with the government refusing the FARC's demand that soldiers and police be pulled from a populated area in the west of the country to be used as the site of the exchange.

The government proposes the swap take place in an unpopulated area where the guerrillas would not be allowed to bring guns. (Reporting by Hugh Bronstein; Editing by Kieran Murray)

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