COBAN, Guatemala (Reuters) - Fifteen years after the end of a brutal civil war in Guatemala that sent tens of thousands of people fleeing to Mexico, refugees are again camping at the border.

But these days they are running from a new kind of conflict -- the occupation by drug traffickers of large swathes of Guatemala's territory.

Mexican cartels working with local gangs control around 40 percent of Guatemala, military experts say, a massive challenge for a new president set to be elected in November and a serious worry for Mexico and the United States.

Both candidates in the election run-off -- a former general and a congressman from the largely lawless north -- plan to beef up security forces to regain control although some worry the problem has already gone too far.

"There are parts of Guatemala that have been abandoned by the state, where there are no public services, that are being taken over by the capos," said Francisco Dall'Anese, who heads a special United Nations panel on corruption in Guatemala.

The situation is most serious in the jungle-covered, northern regions of Peten and Alta Verapaz. In May, a ruthless Mexican drug gang, the Zetas, beheaded 27 farm workers on a Peten ranch in a dispute with the farm's owner.

"The victims were poor farmers who had nothing to do with crime," a source close to the investigation told Reuters. "They had just been hired and had no knowledge of the conflict."

Not much more is known because the prosecutor probing the case was murdered, his body chopped up and dumped in public.

Guatemala's government imposed states of siege in Peten and Alta Verapaz earlier this year, suspending citizens' rights while troops carried out anti-drug raids. People were barred from meeting in large groups or leaving home after a certain time.

The harshest government restrictions were suspended earlier this year, although soldiers still patrol both regions.


Human rights groups worry the army deployments are stirring frightening memories from Guatemala's 1960-96 civil war, when almost a quarter of a million people were killed.

Many of the civil war victims were Mayan villagers killed in army-led massacres in towns suspected of sympathizing with leftist guerrillas, and tens of thousands more escaped across the border into Mexico.

Last month, 91 families -- including dozens of children -- fled into Mexico after the government evicted them from illegally occupied land in Peten's vast protected wilderness.

Government officials say the families, from Nueva Esperanza less than a mile away from the Mexican border, are on drug gang payrolls and have been chased out of the national park by authorities a total of four times since 2007.

The families vehemently deny the charge and say they settled on protected land to grow corn and beans. Living in tents donated by the Red Cross, they are now struggling to find food and clean water on the Mexican side of the border.

"It's totally false. We are small farmers. If we were what they say we are, would we be living in these conditions of extreme poverty?" said Henry Gabriel, one of the displaced people from Nueva Esperanza.

Some families have returned but around 200 people are still waiting for an agreement allowing them to come home.

Many worry they will again be caught in the middle as drug gangs and the army struggle for control of the region.

But in some places, like in the lush coffee and caradamom-growing region around the town of Coban where indigenous Q'eqchi-speaking woman wear breezy, lace-like blouses and long pleated skirts, people welcome the army's presence.

"There should always be a state of siege here so crime will stop," said Edwin Caal, a 21-year-old meat packer in Coban, watching dozens of national police and soldiers with automatic weapons surround a house hiding a cocaine stash.

Officials say crime has gone down since the army moved in although residents say the criminals just slipped underground.

"You would see them in the street, they had luxury cars, lots of money, bars and women. Everyone here knows they are narcos, now they are just more discreet," said Irma Tzi, a local journalist in Coban.


The drug gangs spend heavily to build roads, bridges and airstrips in this and other isolated parts of Central America, where 95 percent of South America cocaine passes through on its way to Mexico and then to the United States.

In May, drug gangs papered Coban with leaflets and blasted residents' cellphones with text messages warning them not attend some public events, said Rudy Ortiz, an army special forces member and the military commander in this region.

The army says it is now outgunned by cartels after 1996 peace accords shrunk its ranks, and Ortiz says his job is made harder as the Zetas lure some of his former colleagues to their side. The Zetas were formed by deserters from an elite Mexican army unit and look to recruit other well-trained military men.

"They learned our tactics, know our training," said Ortiz. "That complicates things."

The peace deal that ended the war reduced the power of the military but, with people terrified of drug cartels and violent street gangs, many Guatemalans now want tough anti-crime policies.

The leading candidate in November's presidential election run-off, Otto Perez, is a right-wing retired general who used to head Guatemala's military intelligence units.

His main campaign slogan has been "mano dura" -- or "firm hand" -- and he is promising to expand the army.

"We share 594 miles of border with Mexico where the weapons, money and drug traffickers enter ... "That's why I want 2,500 more soldiers," Perez said ahead of the first round of voting last month, where he pulled 36 percent support.

His main challenger, Manuel Baldizon, is from Peten and plans to create a new National Guard.

Deploying the army to fight drug gangs is a tactic being used by President Felipe Calderon in Mexico. But more than 42,000 people have died in Mexico's drugs war over the past five years, casting doubt on a strategy that would be even harder to implement in a weak state like Guatemala.

The long civil war and one of the region's lowest tax takes, hollowed out Guatemala's institutions. The inefficient justice system convicts just 5 percent of arrested criminals and the courts and police forces are crippled by corruption.

"In crisis, politicians resort to tough-sounding, but ultimately not very effective, solutions," said Eric Olson from the Woodrow Wilson Center in Washington. "The situation in Guatemala is much worse than Mexico in nearly in every way."

(Additional reporting by Luis Manuel Lopez in Tabasco; Editing by Kieran Murray)

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