By Joan Gralla

NEW YORK (Reuters) - New York Democrats on Thursday said they regained control of the state Senate after the second of two party members who had defected to the Republicans rejoined the Democrats, ending a nearly five-week impasse that had frozen all legislation.

Democrats, who had won control of the Senate for the first time in 40 years in November only to see the GOP oust them from the leadership on June 8, vowed to reform the upper chamber.

Senator Pedro Espada, of the Bronx, rejoined the Democrats on Thursday, breaking a 31-31 split between the two parties in the Senate. He becomes majority leader and the state's first Hispanic to hold the post. The GOP had named Espada as Senate president, which put him third in line to succeed the governor.

Democratic Senator Malcolm Smith, at a broadcast Albany news conference, said he was now the Senate president.

The Senate gridlock, which was set off on June 8 when Espada and fellow Democrat Hiram Monserrate crossed over to the Republican side, has imperiled billions of dollars of federal stimulus funds, forced cities to stop collecting routine taxes, and left unresolved hot-button issues, including gay marriage.

Monserrate returned to the Democratic fold within a week of his original move, creating the 31-31 stalemate.

Democratic Governor David Paterson, who had sued the senators to force them to attend daily sessions and blocked their pay, on Wednesday named Richard Ravitch as lieutenant governor. The appointment would give Ravitch the power to preside over the Senate and succeed Paterson if he could not carry out his role.

The lieutenant governor position has been vacant since Paterson replaced Eliot Spitzer last year after Spitzer resigned.

Paterson smiled and declined comment when asked if the appointment of Ravitch, a 76-year-old political adviser and a former chairman of the Metropolitan Transportation Authority, had forced the Senate Democrats into finally settling on new leaders.

The top Senate Republican, Dean Skelos, said the Democrats will soon lose their newfound cohesion. "Within six months, I predict that there is going to be so much discord in the Democratic conference that they will be looking to us for help," Skelos told reporters.

Espada said he was sorry for the tumult but not sorry for the reforms that will now result. He said the fight was never about what titles he would hold.

Skelos, the Senate majority leader for the past six months, told reporters that Espada had left the Republican conference because the Democrats "promised him that he would be majority leader."

By conferencing with the Republicans, Espada said he was able to bring home to them how severely minority communities were deprived under the GOP's long reign. "We're so divided by where we live, where we go to church," he said. "Now they understand that for 40 years they really misused their opportunities for power."

Smith and other Democrats likened their difficulties to family squabbles.

"We continue to have our differences of opinion but we still come together," Smith said, citing accomplishments in the six months or so that Democrats ran the senate, including historic reforms of Rockefeller-era drug laws and shutting a multibillion-dollar deficit.  

"Has the road been a little bumpy with a few twists and turns, no question about it," he added.

New York's state government has long been derided as one of the nation's most dysfunctional by political analysts and historians. The Democratic senators promised to improve how it works by more equally dividing staffers and funding between the two parties, and empowering all members, perhaps by only requiring 32 to agree to a vote on a bill or resolution.

Paterson estimated that senate gridlock cost the state thousands of jobs and $125 million to $150 million by halting routine tax collections and debt offerings,

Republicans have sued to block the lieutenant governor's appointment, which say they is illegal, a view shared by Democratic Attorney General Andrew Cuomo.

(Additional reporting by Elizabeth Flood Morrow in Albany; Editing by Leslie Adler)