(Adds details on Thursday ceremony, Santos quote, analyst comment)
By Julia Symmes Cobb and Sarah Marsh
BOGOTA/HAVANA, June 22 (Reuters) - Colombia's government and leftist FARC rebels said on Wednesday they had agreed to end hostilities with a definitive ceasefire that leaves the two sides just a step away from resolving the longest-running conflict in the Western Hemisphere.
After more than three years of fraught talks in Havana, the agreement brings into sight an end to a conflict that began as a 1960s peasant revolt before exploding into a cocaine-fueled war that has killed at least 220,000 people and displaced millions.
The accord will be signed on Thursday in Havana by President Juan Manuel Santos and Revolutionary Armed Forces of Colombia, or FARC, rebel leader Rodrigo Londono, better known by his nom de guerre Timochenko.
"Tomorrow will be a great day! We will work for a Colombia that is at peace, a dream starts to be reality," Santos said on his Twitter feed.
Cuban President Raul Castro, United Nations Secretary-General Ban Ki-moon, Venezuelan President Nicolas Maduro and Chilean President Michelle Bachelet will attend, the two sides said. The ceremony is expected to be held at 1200 EDT (1600 GMT).
Santos said this week the government and the rebels will complete negotiations for a final deal by July 20. The ceasefire, which includes terms for the FARC's demobilization, laying down of arms, and security for former fighters, does not begin until the final deal is signed.
Half-way through his second term and staking his legacy on peace, the 64-year-old president has said a deal would add as much as two percentage points annually to economic growth.
"The significance of the agreement that will be signed tomorrow cannot be underestimated," said Jason Marczak, director of the Latin America Economic Growth Initiative at the Atlantic Council.
"The peace deal will only further add to the sense that this is a completely new Colombia than the Colombia of 20 years ago."
Some analysts say security improvements over the last dozen years mean Colombia has already reaped the benefits of the so-called "peace dividend." Commercial bank Bancolombia said in a report a formal deal would add 0.3 percent growth annually.
Santos has promised the final accord will be put to the Colombian people in a plebiscite, and must win over those skeptical of FARC promises to rejoin civil society, including supporters of hard-line former President Alvaro Uribe who claims a deal will grant guerrillas impunity for war crimes.
Even with a FARC deal, formidable security challenges remain. The smaller National Liberation Army (ELN) has only recently said it will start talks, while criminal gangs born out of right-wing paramilitary groups have taken over drug trafficking routes across the country.
The FARC is particularly concerned about security after its soldiers lay down their arms. Thousands of former guerrillas were assassinated by paramilitaries after joining a political party during an attempt at peace in the 1980s.
The South American country of 46 million people, once considered a nearly failed state, has lured back investors and tourists since Uribe launched a U.S.-backed counterinsurgency campaign in 2002. Rich in commodities like oil, coal, gold and coffee, it is one of Washington's closest allies in Latin America and has a long history of market-friendly governments.
Agreement on virtually all of the items on the peace talks agenda in Cuba has already been reached, including such thorny issues such as land reform and participation by former rebels in Colombia's political life.
The two sides have not yet agreed on terms for overall implementation of a peace accord and how a national referendum on the deal will be organized, however.
Santos has promised that any final accord would be put to the Colombian people in a plebiscite. He has come under fire for saying he would have to raise taxes if the country returned to war.
The FARC called a unilateral ceasefire nearly a year ago and the government responded by halting air strikes on rebel camps. Negotiators missed a self-imposed deadline for signing the final accord in March.
The group of about 8,000 combatants, down from 17,000 in its heyday, is considered a terrorist group by the United States and European Union. (Reporting by Sarah Marsh, Julia Symmes Cobb and Luis Jaime Acosta; Editing by Frank Jack Daniel and Tom Brown)
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