ATLANTIC CITY -- AMC Academy, K-B Fine Arts, K-B Georgetown Square, NTI Landover Mall, Roth's Parkway, Roth's Silver Spring West, Roth's Tysons Corner, Springfield Mall.

Generations of tawdry dreams must hang in the air of Atlantic City. Where could they cling, with the ocean on one side of town, and the wreckers and builders busy with the rest?

Louis Malle has distilled some of the funny sadness of trashy hope into an exquisitely kitsch film, "Atlantic City," written by John Guare. It is a fine picture, sweet and pathetic, witty and tender.

In a doomed tenement live a dapper and cowardly old hood left over from Prohibition, who is still dropping old gangster names, and still doing it unconvincingly; a self-declared princess, who failed to win a Betty Grable Lookalike Contest during World War II but has been left in quilted pink comfort by a deceased criminal named Cookie; and a student croupier who is concentrating on card dealing and tape-recorder French, hoping that these skills will take her all the way from her shucking job at the oyster bar to Grace Kelly dreamland -- Monaco.

The essence is contained in a stroll on the Boardwalk, where the old man, played with greatness by Burt Lancaster, speaks of the old days to a young pink hoping to move from amateur to professional dope dealing. The boy mentions that he had never even seen the Atlantic Ocean before that moment. "The Atlantic Ocean was something then," says his elder. "You should have been the Atlantic Ocean in those days."

The film has many small, perfect scenes. In another, the apprentice croupier, played by Susan Sarandon, has just identified the corpse of her worthless husband in the Frank Sinatra Wing of the hospital, and tries to telephone his parents while Robert Goulet, in a promotion ceremony being televised in the hospital halls, gallantly directs his microphoned singing to her. Her parents-in-law refuse to accept charges on the call.

In still another, the imperious indolence of the aged beauty, played by Kate Reid, melts under the genuine helplessness of a flaky, pregnant child.

The essential childishness of these characters, in contrast to the tough rackets they hope to crack, gives the film its soft, appealing tone, just as the presence of the Atlantic Ocean -- in its present, lessened state, of course -- laps charm onto the honky-tonk of Atlantic City.