By Teresa Cespedes and Marco Aquino
LIMA (Reuters) - Peru's army is preparing one of its largest offensives in two decades against Shining Path rebels, officials said on Friday, hoping to quash remnants of the group that embarrassed the government over the weekend.
To avoid civilian casualties, the military was evacuating hundreds of indigenous people from villages in a treacherous bundle of serpentine jungle valleys known as the "Dog's Ear," where the Maoist rebels have used landmines, snipers and ambushes against government forces.
Thousands of troops were being deployed as President Ollanta Humala, a former military officer, responds to a public outcry that rebels brazenly kidnapped 36 natural gas workers, shot down a helicopter and killed six security agents in recent days.
The leader of the group, Martin Quispe Palomino, who had never before shown his face to the media, appeared on local television this week and openly mocked the army's losses. He said the hostages, who were released on Saturday, were taken as a ruse to lure soldiers into ambushes.
"What's coming is an all-out military operation. It's all or nothing," said one high-ranking military official. "It was a setback for us. There were deaths and a helicopter was lost. So a very strong military offensive is coming because there is very intense political pressure to show results."
One of the army's concerns was that some of the rebels might have hidden their weapons and were mingling with villagers to avoid capture.
"Humala has demanded results because he wants to pacify the region and has said that somebody will be held responsible for every death we've suffered," the same official said.
Taking control of the lawless region in the Ene and Apurimac River Valleys of southeastern Peru, where the military estimates there are about 400 rebels, is crucial for Humala's economic plans.
Peru's main natural gas pipeline originates in the nearby Camisea fields and last month Humala said construction would start soon on a second, $3 billion pipeline to feed a new petrochemical complex on the Pacific coast that would draw $13 billion in foreign investment.
A second official, from Peru's defense ministry, made clear that the president, who has twice donned fatigues in recent days, has pushed for the planned assault, which could start at any time.
"The offensive has been ordered by President Humala himself," the second official said. "Villagers are being evacuated from the theater of operations to avoid collateral damage."
The rebels in the lawless region are led by Quispe Palomino, who is known as Comrade Gabriel, and his brothers. The United Nations has called it the most productive coca-growing region in the world.
Holdout rebels, who are now too weak to threaten the government, went into the cocaine-trafficking business after the founders of the group were arrested in the early 1990s.
On Thursday, Interior Minister Daniel Lozada said the government had uncovered a money laundering ring with assets of $100 million that financed the Quispe Palomino group.
The Shining Path, or Sendero Luminoso in Spanish, launched a war to overthrow the state in 1980, and some 70,000 people were killed in the conflict. In 2003, the group captured 70 workers employed by an Argentine company called Techint who were building the Camisea pipeline. Over the last three years, some 60 security agents have died in skirmishes with the rebels.
(Reporting By Terry Wade; Editing by Eric Walsh)