Mahinda Rajapakse insisted he was leaving the door open for the resumption of negotiations with the separatist Liberation Tigers of Tamil Eelam (LTTE), which collapsed in October last year.

"War or peace, we are ready," the president said in an interview with the state-run Daily News. "It is in their hands. It is now up to the Tigers to decide which path they want to tread on.

"We have never hesitated to negotiate and we never left the negotiating table. It was the LTTE which always abandoned talks midway."

Last week government troops captured Thoppigala, a vast jungle area near the lagoon town of Batticaloa. The operation means the Tamil Tigers only have formal command centres in their well-entrenched mini-state in the north.

Sri Lanka's Eastern province, an area of 9,635 square kilometres (3,720 square miles) and under government control for the first time in more than a decade, has now been earmarked for an ambitious rebuilding programme, the president said.

"I fervently hope, especially our international friends, will help us to rebuild the east," Rajapakse said as he kicked off state-sponsored celebrations at Independence Square in Colombo's leafy Cinnamon Gardens.

"I believe with optimism that our international friends would help us in this task. Friends, please come to the East."

Sri Lanka's government is, however, currently facing cuts in international aid with several donors expressing frustration over a worsening human rights situation and the government's apparent determination to push for a military solution to the 35-year-old ethnic conflict.

Rajapakse, who is also the commander-in-chief of the armed forces, received a 21-gun salute after security forces released hundreds of balloons to mark the occasion.