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In what is shaping up as a major political defeat for the Mexican government, TIME Mexico reporter Ron Buchanan says, President Ernesto Zedillo this afternoon called off his hunt forrebel Zapatista leadersin the southern Chiapas state and offered peace talks to their elusive leader, the mysterious Subcomandante Marcos. Hours earlier, the governor of troubled Chiapas resigned after two months in office, bowing to rebel calls for his resignation -- a move that Buchanan says is inconceivable without orders from Zedillo's highly-centralized national government. The president's about-face comes after an ill-fated weekend effort to hunt down Zapatista leaders, who represent poor Mayan peasants, amid international stock market jitters over the rebellion's growing political impact. "The hunt for Marcos was taking too long," Buchanan says. "The government thought that they could do away with the Zapatista movement in 72 hours, and that decisive action would make the stock market rally. Quite plainly, it didn't work." Making matters worse, he says, was another fall in the peso's value today.