By John Whitesides, Political Correspondent

DENVER (Reuters) - Ailing Sen. Edward Kennedy, head of America's most fabled political family, offered a rousing tribute to Barack Obama on Monday in an emotional appearance that had many fellow Democrats near tears.

Diagnosed in May with brain cancer, Kennedy, 76, walked unaided to the podium of the Democratic convention to address a roaring crowd holding a sea of blue "Kennedy" signs and chanting his name.

"This November the torch will be passed again to a new generation of Americans," Kennedy said, borrowing from the 1961 inaugural speech of his slain brother John Kennedy.

"The work begins anew. The hope rises again and the dream lives on," Kennedy said, echoing his famous 1980 convention speech after losing to Jimmy Carter. At that time he said: "The dream shall never die."

Kennedy, who endorsed Obama earlier this year at a pivotal moment in the Illinois senator's presidential nominating duel with Hillary Clinton, was diagnosed on May 17 with a malignant brain tumor called a glioma, which usually kills within three years.

But after a day of speculation about whether he would feel like speaking to the convention, Kennedy addressed the convention forcefully.

"It is so wonderful to be here, and nothing is going to keep me away from this special gathering tonight," said Kennedy, who was joined on the podium by his family after his speech.

The appearance was his first public foray since he returned to Capitol Hill on July 9 to cast a tie-breaking Senate vote on a Medicare health bill. Long a champion of expanding public health care, Kennedy seized the moment to address the issue, dear to his heart. He said Obama offered the promise of breaking the political stalemate in Washington.

BREAK GRIDLOCK

"This is the cause of my life -- new hope that we will break the old gridlock and guarantee that every American -- north, south, east, west, young, old -- will have decent, quality health care as a fundamental right and not a privilege," he said.

"We can meet these challenges with Barack Obama. Yes, we can, and finally, yes, we will."

Since the cancer diagnosis in May and surgery in June, Kennedy has spent most of his time at home at the Kennedy compound on Cape Cod in Massachusetts, where he has been photographed sailing but rarely appears in public.

The liberal giant was introduced by his niece, Caroline Kennedy, daughter of President John Kennedy, who was assassinated in Texas in 1963. Their brother Robert was assassinated in California during his 1968 presidential campaign.

"In our family he's known as Uncle Teddy," said Caroline Kennedy. "He is a man who always insists that America live up to its highest ideals, who always fights for what he knows is right and who is always there for others."

The convention featured a video tribute directed by acclaimed documentary filmmaker Ken Burns. It featured photos and footage of Kennedy with his brothers and testimonials from fellow Massachusetts Sen. John Kerry, civil rights leader and Georgia Rep. John Lewis and Obama.

Kennedy ran unsuccessfully for the White House in 1980 against the incumbent Carter, falling short in his bid for the nomination in a campaign that split Democrats much like this year's battle between Obama and Sen. Hillary Clinton has split the party.

On the campaign trail, Obama told reporters Kennedy was someone who "I love to death, he's just a good man and obviously he is going through a tough time."

"He is being honored tonight because he is a giant not only to the Democratic Party but in the American political landscape," Obama said. "There are very few people who can point to more concrete accomplishments that have made a real difference in the lives of ordinary folks than Ted Kennedy."

(Additional reporting by Robert Doherty; Editing by Howard Goller and David Wiessler)