The AGS equations for rearrangement transition operators in the three-particle problem are turned into a set of effective multi-channel two-body equations using the pseudo-state discretization of the two-particle resolvent. The resulting effective equations are LS-type integral equations in the spectator degrees of freedom, much like the LS equations of multichannel inelastic scattering. In particular, the effective potential matrix is real, energy-independent and non-singular, while the propagator matrix has only simple poles. Difficulties associated with the moving singularities of the effective potential matrix in the usual separable-T approach to AGS equations are avoided. After regularization of the kernel via subtraction procedures well known from two-particle scattering, the set of coupled LS-type equations in the spectator momenta are solved rather straightforwardly by the Nyström method. Solutions of effective two-body equations are then used to calculate the breakup amplitudes using the well-known relationship between rearrangement and breakup amplitudes. Calculations using a local momentum-space basis on a benchmark model of the n+d collision show that rather accurate results for elastic and breakup amplitudes can be obtained with rather small bases.