By WILLIAM J. KOLE, Associated Press Writer

Kurt Waldheim, whose legacy as U.N. secretary-general was overshadowed by revelations that he belonged to a German army unit that committed atrocities in the Balkans in World War II, died Thursday. He was 88.

Waldheim, who was hospitalized in Vienna last month with an infection, died at home of heart failure, with his family at his bedside, state broadcaster ORF reported.

Austrian President Heinz Fischer issued a statement expressing his "deepest condolences," and officials lowered the flag outside his office to half-staff.

"We have lost a great Austrian," Vice Chancellor Wilhelm Molterer said.

Waldheim, who served as U.N. chief from 1972-81, was first confronted with purported evidence of his personal implication in wartime atrocities when he ran for the Austrian presidency in 1986. He consistently denied wrongdoing, defending himself against disclosures made by his main accuser, the World Jewish Congress, and by foreign media.

But his initial denial of serving in the German army unit — and then assertions that he and fellow Austrians were only doing their duty — led to international censure and a decision by Washington to place him on a "watch list" of persons prohibited from visiting the United States. That ban was never lifted.

Waldheim's ascendancy to the presidency led to a bruising controversy at home, and it damaged Austria's reputation abroad. During Waldheim's tenure from 1986-92, Austria was largely shunned by foreign leaders, and he never honored his pledge to be a strong president.

In Austria, Waldheim's backers saw him as an innocent victim of a smear campaign launched from abroad but triggered at home. But his opponents kept clamoring for his resignation because of the huge loss of prestige for the country caused by his election.

In February 1988, a government-appointed international commission of six historians investigating his wartime service said it found no proof that Waldheim himself committed war crimes. But it also made clear that his record was far from unblemished.

The panel declared that Waldheim was in "direct proximity to criminal actions."

Its report said that Waldheim knew about German army atrocities in the Balkans and never undertook any action to prevent or oppose them. They admitted later they dropped a reference to Waldheim's "moral guilt" for fear of overstepping their mandate with a "judgmental" statement.

In April 1987, the Justice Department put Waldheim on a "watch list" of undesirable aliens that barred him from entering the United States — an embarrassment no other Austrian public figure had ever experienced.

In his official biographies, Waldheim initially said he had been wounded at the Russian front in 1941 and returned to Austria to continue his studies.

Only under pressure did Waldheim gradually revise his official resume to say that he was transferred to the Balkans in April 1942; went to Arsakli, Greece, as an interpreter that summer; and, in April 1943, became an assistant adjutant with Army Group E, Department I-C. Its commander, Gen. Alexander Loehr, was later executed in Yugoslavia for war crimes.

The World Jewish Congress published documents showing that Waldheim's unit killed partisans and civilians. Some of the papers bore Waldheim's signature or initial. But he kept insisting that his job was merely to verify their authenticity, not to act on the information or give orders.

As pressure mounted from all sides, Yugoslav newspapers published a facsimile of a 1947 document showing Waldheim's name on a list of German officers who took part in the infamous Mount Kozara operation. According to some Yugoslav versions, 68,000 people — including 23,000 children — died in the offensive.

Waldheim originally declared he had been behind the lines near Kozara. Later, he said he had confused the geography.

Former Chancellor Wolfgang Schuessel called Waldheim "a great fighter for peace and freedom in the world," but said he endured bitter personal experiences that "unjustifiably moved him into the proximity of war criminals."

Schuessel said he hoped Waldheim's critics would refrain from disparaging him "at least in this hour."

Born Dec. 21, 1918, in St. Andrae, a small town northwest of Vienna, Waldheim studied law at Vienna University and attended the Consular Academy, the nation's top diplomatic school. After the war, he entered the diplomatic service. For three years, he worked in the office of Foreign Minister Karl Gruber. In 1948, he was named first secretary of the Austrian Embassy in France.

From 1951 to 1955, he worked in the Foreign Ministry, and he spent the next two years as Austria's observer to the United Nations. He was ambassador to Canada from 1958 to 1960 and then returned to the Foreign Ministry.

From 1964 to 1968, he was Austria's representative to the United Nations, then became foreign minister, a post he held for the next two years. After starting another term as U.N. representative, he ran for the presidency of Austria for the first time in 1971 and lost to Socialist Franz Jonas, the popular mayor of Vienna.

He served two five-year terms as secretary-general of the United Nations, but China vetoed his attempt at a third term. Although he traveled to many crisis areas, including the Middle East, Waldheim never gained the reputation of peacemaker enjoyed by other U.N. chiefs.

The current secretary-general, Ban Ki-moon, learned "with sadness" of Waldheim's death, U.N. spokeswoman Michele Montas said at U.N. headquarters in New York.

"The secretary-general extends his condolences to Mr. Waldheim's family, as well as to the Austrian government and people," she said.

Waldheim is survived by his wife, Elisabeth, whom he married in 1944, and their three children.