The diner dream has died. The classic eatery, complete with Formica and neon and Naugahyde, will not be brought down from New Jersey to reside on the Mall as Smithsonian curators and diner aficionados had hoped.

"It is a painful decision," said National Museum of American History Director Roger Kennedy. "I happen to love diners. But diners are enormously expensive to rehabilitate and enormously expensive to restore and we just don't have the money -- period."

Originally, curators had planned to include a section of the diner as an example of the new plastics of the '30s and '40s in "A Material World," an exhibit scheduled to open in April. But after the diner, which was born as the Melrose in Philadelphia in 1940 and later was sold and moved to New Jersey, received extensive press attention last summer, the staff grew more concerned about taking the diner apart to put it in the exhibit.

"Carving up something that's a relic might cause some problems," said Smithsonian spokeswoman Marilyn Lyons Rue. "You can't put it back together. If it was indeed a national treasure, we didn't want to carve it up. What started out as a great idea just got more complicated."

The museum staff then thought of transporting the entire structure to Washington and setting it up as a working restaurant on the Mall. But they examined the proposed cost, thought about the bureaucratic complications of installing anything on the Mall -- and took a second look at the inside of the diner. Estimates for the move and restoration came in at around $250,000.

"We found how badly it had been gutted, and essentially we'd have to re-create at very great cost a whole new diner," Kennedy said. "That is not the most important thing we can do for American education, so we're not going to do it. It is obvious there is intense sentimental interest in diners, so all that has to happen is for the Smithsonian to send people up to look, and it's a news story. Which is okay, but ultimately you have to decide what you can do and what you can't."

Exhibit designer Jeff Howard found the diner during a vacation search for exhibit candidates. Now he sounds disappointed but resigned.

"I personally never liked the idea of having to cut it up," he said. "I had misgivings, as anyone would about cutting up a precious thing. But I felt it was better than someone cutting it up just for scraps and never having it at all."

The diner now sits crumbling on a desolate stretch of highway, its central air conditioning system -- said to be the first in a diner -- now dead, its sleek metal and slick plastics scratched and discolored. It is owned by Camillo Petito, a New Jersey fast-food restaurant owner and businessman who was eager to donate the structure to the Smithsonian, so he could in one action get the thing off his land and reap a tax credit.

Petito could not be reached for comment yesterday, and no one at the Smithsonian knows what he intends to do with the old Melrose now.

But back in Philadelphia, the family that built the then state-of-the-art Melrose and still runs its descendant, a large and bustling South Philadelphia landmark, heard the news with sadness.

"We had looked forward to going down to see it, and had been very excited about the whole process from the time we first heard about it," said Richard Kubach Jr., whose father built the Melrose and who now runs the business. "And the whole process they went through developing the history of the diner and the people who worked here! And when they went from including it in the 'Material World' exhibit to considering moving the whole thing down to the Mall and opening it up as a food operation, it was even more exciting.

"We even said we were going to send some of our longtime employees down to it. We had talked about going down as a group to see it. But I guess some things were just not meant to be. The reality of life comes in."