The reading wars are heating up again, fueled by a scramble for $6 billion in federal funds, and the students in Agnes Martin's first-grade class at Public School 172 are caught in the middle.

To an untutored eye, the scene seems innocent enough: 20 children squatting on a rug, piecing together letters to form words such as "dent" and "stand." After 15 minutes of this activity -- any more would be boring, says school principal Jack Spatola -- the students settle down to hear the story "Harry the Dirty Dog," which they will later re-create in pictures.

The reading methods practiced in P.S. 172 have won the enthusiastic approval of the chancellor of the New York City school system, Joel Klein, who embraced them last year as a model for other schools to follow. But they have been denounced as "unscientific" by reading experts for the Bush administration, who advocate a much greater emphasis on phonics, the repetitive sound drills viewed by some educators as the key to early reading progress.

The dispute has become a test case for the implementation of President Bush's ambitious Reading First initiative, which aims to help every child in the country become a successful reader. Without the federal government's seal of approval, New York's reading program is ineligible for federal subsidies.

Last month, the two sides reached an uneasy compromise when Klein announced that 49 of the city's lowest-performing schools would adopt a phonics-rich reading program acceptable to the federal government, unlocking $34 million in Reading First funds. The rest of the city's 600-odd elementary schools will stick with the methods showcased by P.S. 172.

While Klein and his aides portrayed the concession as a common-sense step that would preserve the best elements of both approaches, the action has rekindled a long-simmering feud between progressive and conservative educators over the best way to teach reading. It is a battle that pits left against right, the feds against local school boards and "child-centered" against "teacher-centered" philosophies of education.

The conservative camp argues that Klein, a former federal prosecutor who won fame by bringing antitrust charges against Microsoft, has fallen under the sway of progressives with dangerously wishy-washy ideas about how children learn. The liberals argue that Klein and New York Mayor Michael Bloomberg have sold their convictions for a few million dollars in federal cash.

"Evidently someone in the Bloomberg administration decided that they would do whatever they needed to do to get the money," said Richard Allington, vice president of the International Reading Association and a critic of the Bush administration's contention that scripted phonics programs have been "scientifically proven" to produce superior results to the "balanced literacy" approach favored by New York City.

Allington accuses the federal government of favoring "one-size-fits-all" programs, and "an almost Orwellian" effort to dictate a nationwide curriculum that everyone must follow.

But Sol Stern, an education expert at the Manhattan Institute, argues that the true "dictators" are Klein and his deputy chancellor, Diana Lam, who are trying to foist "progressive" teaching practices on the nation's largest school district.

"Their literacy coaches are going around schools, directing teachers to put a rug in the room in the exact same place, telling them not to stand in front of the classroom, not to lecture to the kids," he said

Most reading experts agree that a certain amount of phonics instruction is an indispensable part of an effective reading program, along with other elements such as constructing word walls and writing book reports. The $6 billion-dollar question in education these days is where the balance should be struck, and whether to adopt one of the highly structured phonics reading programs touted by the Bush administration.

"The devil is in the details," said Barbara Kapinus, a reading specialist at the National Education Association, the nation's largest teachers union.

Here at P.S. 172, in an exceptionally diverse working-class area of Brooklyn, the children have moved for the moment from the rug that is the symbol of the progressive approach to education and are working in groups at their desks, drawing pictures of the story they have just been read. The shelves are full of Dr. Seuss books, and the walls are covered with words the students have recently mastered. An atmosphere of controlled chaos pervades the classroom.

Dannell, 8, an African American student from Brooklyn, is showing his Mexican American friend Erik how to draw a picture of a dirty dog. Carolina, 6, a Polish girl with two little blond ponytails, is working on the middle of the story. Dan Dan, 6, from China, nicks her hand while cutting out some words that she will later glue to a word chart. She runs off to the school nurse to get a Band-Aid.

The children get their daily dose of phonics from a program called "Month by Month Phonics," which has been criticized by conservative educators as insufficiently rigorous. But teachers at P.S. 172 say that too much phonics is a turnoff for the students, whose attention begins to wander if they are subjected to more than 15 minutes of drills a day.

"In my last school, the kids sat in desks, never in a ring," said Martin, who transferred to P.S. 172 because she could not stand the scripted "skill and drill" routines. "I had to use a chalkboard, so I couldn't see the kids' reactions. Here, we approach phonics by getting the kids to do interesting things."

When President Bush unveiled his Reading First initiative in 2001, at the very moment that hijacked airplanes were striking the World Trade Center, he insisted on the need for programs that met federal accountability standards. In the No Child Left Behind legislation the following year, Congress stipulated that federal reading funds would be distributed only to school districts that agreed to adopt programs that were "grounded in scientific research."

Deciding which programs are "scientifically grounded" and which are not has turned out to be enormously controversial. Critics have accused the Bush administration of favoring a handful of commercial publishers, such as McGraw-Hill and Harcourt, which have aligned their programs with the theories of conservative educators. Supporters argue that the programs are the product of intensive research into the best way to teach a child to read.

"Our studies are as rigorous as pharmaceutical trials," said G. Reid Lyon, director of child development at the National Institute of Child Health and Human Development and a leading proponent of a phonics-centered approach to reading. The studies recommend about an hour a day of "systematic" phonics instruction.

School principal Spatola does not claim to be an expert in the clinical trials and focus groups used to test the commercial programs. Instead, he points to higher-than-average test scores as evidence of the success of his "balanced literacy" approach. In 2002, 66 percent of his students met statewide literacy standards, compared with 32 percent for similar schools and 47 percent for the city as a whole.

An earlier experiment with one of the intensive phonics programs, said Spatola, produced early gains followed by a leveling off. "The law of diminishing returns set in. The kids were not interested in what they were reading."

The states have served as a buffer between the Bush administration and local education departments over the implementation of the Reading First initiative. Several states, including Maryland and Massachusetts, have revised their reading programs to bring them in line with federal requirements. It is up to the individual localities to decide whether to accept the federal reading funds.

Chris Doherty, the director of Reading First, said the Department of Education has reached agreement with all 50 states and the District of Columbia on the criteria for distributing the federal reading funds, and about $1.78 billion has already been disbursed. He said the states enjoy "a great deal of flexibility over how they distribute the money" but are required to abide by congressional guidelines that their reading programs be based on proven scientific research.

Klein and his aides defend their Jan. 9 decision to adopt a federally approved program called Harcourt Trophies in 49 of the city's poorest schools, as a pragmatic move to comply with congressional guidelines. "We tried, we think successfully, to come up with a program that is acceptable to the state and aligned with the work that we do," said Lam, the deputy chancellor.

Some local education officials have expressed frustration over what they see as unwarranted federal interference in the curriculum, which they believe undermines the principle of local control.

"The Democrats would never have gotten away with this," said Boston schools superintendent Thomas Payzant, who served as assistant secretary of education in the Clinton administration. "When we talked to the states about setting federal standards back in 1993 and 1994, we were beaten up by conservatives who were opposed to federal interference."

So far, only one large city, San Diego, has rejected the federal subsidies outright. An internal San Diego Schools memorandum made available to The Washington Post concluded that the federal program would involve an extensive retraining of teachers, requiring "time-consuming" testing of students that would take away from teaching time and existing learning goals.