I have some pretty bad news for you. Rebuilding the indexes will reduce fragmentation, but will increase the size of your log file again and possibly increase the size of your data file (if that has been shrunk smaller than the database wants it to be).

It sounds to me that your hosting company is restricting your size based on how much money for space your company is paying. Chances are you'll have to get your boss and the finance guy involved in this to bargain with the hosting company for more space. And if the hosting company is restricting size on other factors (not based on money) that's a whole 'nother ball of wax.