NEW YORK -- "I'll show you one of our seedier places," says police officer Bart Solomon, heading down 43rd Street toward what he calls "an infamous transvestite bar."

It's a drizzly winter night; the streets and sidewalks of Times Square gleam with reflected neon. The rain means a middling crowd, only -- oh, maybe 20 times the number of people on the street in downtown Tampa or Denver at high noon. Bad news for Divine, the gold-toothed street photographer who shoots Polaroids of passersby for five bucks a pop. But then, Divine complains, business has been "horrible" ever since the police outlawed the cartoonish painted backdrops he and his colleagues used to create. The problem, Solomon explains, was that lowlifes from Brooklyn used to pose with their weaponry, and one guy who wanted to be portrayed cradling his .357 Magnum shot and wounded an intervening cop.

The infamous bar has a deceptively mundane wooden facade with cutout letters: Sally's Hideaway. Prostitutes and voyeurs used to loiter outside, "plying their trade, as it were," says Solomon. "They attracted all sorts of garbage, pickpockets ... con artists." The police ran them off; now the crowd stays discreetly indoors. "Everything okay?" Solomon asks, poking his head inside. A statuesque creature in blue sequins and a pageboy smiles that yes, everything's just dandy. A very tall woman? Or a man with flashy taste in evening wear? "A lot of times," Solomon shrugs, "it's hard to tell."

In 2 1/2 years walking a beat along 42nd Street, he's come to know Times Square, its disgraces and its advances. He points out the drug dealer in the diamond earring and denim jacket, the guys milling around the public phones straining to overhear someone's credit card number, the hotel where he found a man dead of a drug overdose. But he also walks into the lobbies of former welfare hotels, now sanitized and restored to health, and of the Loew's Astor Plaza, which has more seats (1,528) than any other movie house in New York. He speaks warmly of the Rubber Band Man, a contortionist who hangs out near Papaya World, sweeping streets, giving tourists directions and putting his feet behind his head.

"To be honest with you, I'll probably miss some of the excitement of the old Times Square," Solomon says. Like everyone else here, he's seen the changes coming -- office towers and new hotels marching down from the north, a long-delayed redevelopment project finally laying claim to 42nd Street. He's heard how all the construction is going to clean up Times Square at last, and while he won't mourn the drug trade or the porn palaces, he has some ambivalence.

"Maybe you'll see sidewalk cafes," he says, trying to be evenhanded about the metamorphosis. "It'll be so new, though. Everything's going to be glass and steel. I'll miss the old Times Square."

There'll be half a million people thronging Times Square tonight, with another 200 million viewers gathered before TV sets around the world, all whooping and smooching when the ball drops at midnight. The tradition dates to 1907, when the building now called One Times Square was briefly the world's tallest. On television, at least, everything will look much the same as ever.

But Times Square isn't. For better or for worse, maybe for better and for worse, the neighborhood is undergoing a dramatic physical transformation. A wave of new hotel rooms -- 4,200 in six years, with more to come -- and an estimated 6 million square feet of new office space have replaced large chunks of the decrepit but still magnetic Crossroads of the World.

A $300 million Holiday Inn has supplanted the Pussycat empire on Broadway. A few years back, "you had massage parlors, a movie house, prostitutes roaming the aisles," recalls Bill Daly, who has made a career out of trying to de-sleaze the neighborhood, first as an inspector for and now as director of the Mayor's Office of Midtown Enforcement. "Busloads of German and Japanese tourists would go into the Pussycat Cinema with prepaid tickets; it was part of their tour."

One block down, a major law firm has moved into a sleek aluminum-and-glass office building designed by the distinguished architectural firm Gwathmey Siegel. It replaces a low-rise cluster that included a dive called the Tango Palace. "In the '20s, it was a dime-a-dance joint, and I think some of the women were still working there," Daly says.

West 45th Street was the home of the Peppermint Lounge, birthplace of the ("Come on, baby, let's do the") Twist, a spot that subsequently became a topless bar, a gay bar and finally a magnet for transvestites from all over the world. Now there's a 40-story office building on that site called Tower 45, home to lawyers and insurance actuaries.

And still to come is the most massive urban renewal venture in the city's history. The $2.5 billion 42nd Street Development Project, delayed for more than five years by scores of unsuccessful lawsuits, is gathering steam. Last spring the state Urban Development Corp. took title to most of a 13-acre swath along 42nd between Eighth Avenue and Broadway; it has begun moving out tenants. Nathan's has closed its big hot dog emporium; Geraldo Rivera's talk show has moved and so has the Jewish Weekly; dozens of agents and messenger services, textile firms and dentists, a computer school and a couple of movie theaters have relocated.

By early fall, the UDC expects to begin demolition and construction. If the subsidized project unfolds as planned -- and officials vow that it will -- the low-rise jumble of shoddy shops and emptied theaters along 42nd Street will give way to: four big office towers totaling 4.1 million square feet, a renovated subway station underneath, eight restored theaters and, eventually, a merchandise mart and a hotel.

The start of this undertaking has been announced and delayed so many times that there are still those convinced it won't materialize, especially in a sinking economy in which office space stands empty and developers have trouble finding lenders. But even if the "elephant legs," as some critics have labeled the 32- to 58-story towers, don't go up as planned, stretches of 42nd Street are nevertheless about to come down.

For many of those long involved with the neighborhood, this is nothing but good news. Will Rebecca Robertson, president of the 42nd Street Development Project, miss anything of the old Times Square? No, she says; "I'm not remotely romantic about the kind of stuff that goes on on 42nd Street." Will Bill Daly of the Office of Midtown Enforcement? Uh-uh. Will Harvey Sabinson, executive director of the League of American Theatres and Producers? "There are people in favor of tawdriness," he says. "We're not."

And it's true that 42nd Street, in particular, has moved beyond seedy and tacky to dismal and menacing. Part of its historic appeal, since the Depression forced many legitimate theaters to become burlesque houses, has been that the normal rules didn't entirely apply. "You could come here to have a good time, but a good time on the edge," Daly reflects. "But what was on the edge in the '30s and '40s eventually became a lot more dangerous."

'No Place Else to Go'

Just as the Covenant House staffers are preparing to begin their rounds -- driving through Manhattan looking for street kids in need of hot cocoa, a friendly ear, a detox program, a shelter -- a pixie-faced girl in an oversized ski jacket shows up and asks for a sandwich. Outreach worker Claude Marshall hands over a salami and cheese and asks where she's from. Boston, she says. She's 18; she ran away with her boyfriend but had money sent and she's going home tomorrow.

Marshall looks skeptical as she sprints away. "She's younger," he says. "And she's not going back to Boston tomorrow, either." Her "boyfriend," he adds, might be her pimp.

A few minutes later, as Marshall and co-worker Melvin Anderson are loading food into the van parked on Eighth Avenue, she's back. Anderson gives her three more sandwiches and a card with Covenant House's emergency phone number. "If you can't get back to Boston, you come to Covenant House. We'll help you get home," he says. "If you need medical attention, if you're hungry, if you need anything you can call us."

"I know," the girl says, edging away again. "Bon Jovi does a commercial for you guys."

Despite the financial strictures Covenant House has experienced since founding priest Bruce Ritter resigned last winter amid allegations of sexual misconduct, the van still goes out every night. With crack traffic and HIV infection, the streets are deadlier than they used to be. Midwestern teenagers who fight with their families, steal credit cards and take off don't come to New York much anymore; they head for the Sunbelt instead. "When kids wind up in Times Square," says communications vice president George Wirt, "they've been bounced around until there's no place else to go."

Periodic influxes of police, under such designations as Operation Take Back and Operation Safe Corridor, kept the number of crimes in the Times Square area steady from 1979 to 1989, no small accomplishment given the increases in most crimes in the rest of the city. Still, the two sides of 42nd Street between Seventh and Eighth constitute one of New York's most dangerous blocks, with more than 2,300 complaints of crimes filed in 1989. There were two murders and two rapes on the block, plus nearly 500 grand larcenies and more than 900 complaints of drugs being bought or sold.

The number of sex-related businesses in the neighborhood has shrunk by 60 percent since 1977, as cops and the Office of Midtown Enforcement shut down establishments found to permit prostitution and drug trafficking. Times Square remains the heart of the city's porn business, though; 37 of the 44 sex-related businesses in midtown Manhattan are here: The Adonis. The XXXtasy Video Center. Peepland.

At the bright, neon-festooned Show World Center on Eighth Avenue, the largest of the sex emporiums in the area and very highly rated (four penises) by Screw magazine, a 25-cent token buys maybe 30 seconds in a video booth screening "Big Melons" or "Precious Peaks" (or a specialty offering, starring two pregnant women, called "Ready to Drop"). At lunchtime one recent weekday, two dozen customers, many in suits and ties, had found their way into the upstairs theater where porn star Tasha Voux and a white chiffon scarf occupied a small stage and everyone's attention. Between acts, a man in a vest labeled "Maintenance" mopped down the stage.

Small wonder that in addition to all the other groups the neighborhood attracts, it also lures evangelists intent on delivering souls.

"The Lord led us to 42nd Street and Seventh Avenue," says Sister Brenda Allen, who's preached in Times Square for nine years, Monday through Friday, noon till 6. Tenants at One Times Square complained, so she and her colleagues have moved their constitutionally protected sound system beneath the canopy of the shuttered Nathan's.

For the holidays Sister Brenda (who came from Detroit 16 years ago to be an actress and is now, finally, on Broadway) has worked up a timely riff that begins, "Je-sus is the rea-son, for the Christmas sea-son."

It's a fittingly show biz sort of message, actually. "You may never meet Arsenio Hall," Sister Brenda proclaims. "You may never meet David Letterman. You may never meet Johnny Carson. But there is One we will all meet. ..." She goes on to warn that "Jesus Christ is coming to kick butt."

'Our Town Square'

The Funny Store has sold magic tricks, jokes, souvenirs and plastic dog poop for 30 years, so it's not entirely surprising that in the middle of a conversation, proprietor Ed Cohen has to field a phone call from a woman looking for a penis necktie. Cohen has heard of the item, but somehow neglected to stock it. "I got a fish tie," he suggests helpfully. "I have a tie, it's a design, and when you hold it horizontal it says '{Expletive} you.' I have a bow tie with flashing lights." No sale.

The three-story art deco building at the corner of Seventh and 42nd, which houses the Funny Store and a dozen other small businesses, has been acquired by the UDC. So Cohen knows he will have to move to make way for an office tower, though not when or where. He is melancholic at the prospect.

Cohen knows as well as anyone that potential customers are scared away by the neighborhood's unsavory reputation. He used to stay open till 2 a.m.; now he closes by 8:30. But he doesn't support the UDC's solution. "There won't be any more small stores," he complains. "We won't be able to afford the rents they'll probably want. And with office buildings, like they say, it won't bring tourists. It won't be the Great White Way anymore."

What Times Square will turn out to be is still a debatable issue. "It is being transformed," says Kent Barwick, president of the Municipal Art Society. "Into what, it's not clear."

The city revised its zoning laws in the early '80s, permitting bigger buildings in the area and shifting the locus of development from the East Side to the West. The last high-rise totems of that prosperous decade are now being completed. Maybe they wouldn't have been undertaken unless developers were confident that the government would rebuild 42nd Street, as UDC Chairman Vincent Tese argues, or maybe all the private building proves that the subsidized city-state project was unnecessary, as skeptics insist.

But given that a building boom looked inevitable, such groups as the Municipal Art Society and Save the Theaters concentrated their energies not on stopping it but on steering it. Perhaps some of the old pizazz can be preserved. The UDC itself, while intent on bringing in 20,000 new office workers, is not unsympathetic.

But the score so far is unresolved. Thirty theaters have been landmarked to ward off future bulldozers -- but theater owners are appealing that ruling as unduly restrictive. New buildings must include the traditional big, gaudy signs (even the UDC's once-austere office towers are undergoing redesign to raise the neon quotient) -- but compliance has been spotty. New buildings must also devote 5 percent of their space to "entertainment-related uses," a partial though possibly inadequate counterweight to all those bankers and account executives. The white-collar crowd may even prove helpful, if it can be turned into restaurant- and theater-goers who don't vanish at 6 p.m.

Ten years hence? The Broadway Association, made up of major property owners, foresees a clean, safe tourist mecca. It has already begun constructing a Walk of Stars, with brass plaques set into the sidewalks. "You'll see groups of third-graders with their lunches in hand, walking along with their brochures, hearing their teacher tell them about Helen Hayes," predicts President Richard Basini.

Robert Neuwirth, who lives in adjacent Clinton (less elegantly known as Hell's Kitchen) and helped found the Clinton Coalition of Concern to oppose the UDC project, sees nothing but real estate interests profiting from "the Houstonization" of New York.

Kent Barwick, of the Municipal Art Society, tries for qualified optimism. "Times Square, for better or worse, is our town square, where people gather to celebrate V-J Day and buy war bonds and mourn when JFK was shot and drop the ball on New Year's Eve," he says. "Where all the races and classes of the city are in somewhat nervous contact -- but they are in contact. ... Is this center of all that New York-ness going under or not? We've got our fingers crossed."

'Basic Impulses'

The third floor of the old Longacre Building is eerily empty; every footfall echoes. The UDC has given its tenants until Feb. 1 to move out, and 90 percent of them already have. But press agent Dick Falk hesitates.

First, he figures that the fixtures and furnishings in his narrow, paper-strewn office are worth $30,000 in relocation compensation, which is roughly $29,000 higher than the UDC's calculations. Second, where else can the Mayor of 42nd Street go? Falk, who turned 78 on Christmas Eve, carries a bronze badge with that title, bestowed by then-Mayor Robert Wagner and occasionally still useful for discouraging parking citations. He thinks he ought to be able to look out his window and see moving news headlines on the "zipper" sign, political demonstrations, motorcades and muggings, the whole gamut of Times Square activity. He has worked on 42nd Street for 50 years; he doesn't want to leave.

"If you are a nobody, a little man, you run. They give you $1,500, you take it, you're happy," explains Falk, theatrically dapper with his white Vandyke and hyperactive eyebrows. "I'm not exactly in that category. I represented Streisand!" (For two months in 1962, but still ...) "Sonja Henie!" (She acted on ice skates.) "Anna Maria Alberghetti in 'The Boy Friend'! ... I could go on."

He does go on, riffling happily through hundreds of old press releases and black-and-white glossies. There are few press agents like Falk in Times Square or anywhere else anymore. A throwback to a more imaginative era in journalism, he once hyped Hubert's Flea Circus on 42nd Street by attempting to book a room for The Great Herman, one of its star fleas, at the Waldorf. "I put a little gold chain on him," Falk says. "I tipped off some newspapers, of course." He publicized a show called "Gospel Time" years ago by lugging a large wooden cross up Broadway. He had a million of 'em.

Business is a bit slower now. The current client roster includes, let's see, "a girl named Charlotte von Vogt ... the world's most active day player" (a k a a movie extra). A former bra model, she was once honored for having the most beautiful breasts in the world, Falk points out. He also represents The Greenwich Village Poet Laureate and John Cohan, Psychic to the Stars.

But probably the cause Falk works hardest for is Times Square itself. He's issued dozens of press releases denouncing its redevelopment and promoting gentler renewal schemes of his own (one called for painting the sidewalks red, the streets blue and the buildings "luminous white"). "My aim is to keep this area as it is," he announces. "I don't want it 'cleaned up.' It'll be dead, like Fifth Avenue at midnight. Or Park Avenue -- if you see a person after dark you get a reward."

Falk's view -- though expressed less cerebrally, it's not terribly different from that of more loftily credentialed critics -- is that for all Times Square's troubles, "there's something here {people} want. Basic impulses. Excitement. A little color. I don't want to use the word 'sex,' but without it no one would be alive.

"Why do they come here? Why don't they go to Fifth Avenue and buy a purse for $3,000?" It's a rhetorical question, and there's no stopping him anyway.

"You're not going to see, in history books, teachers explaining Park Avenue; that's not America," Hizzoner says. He gestures grandly past the filthy blinds at the lights outside on Broadway. "This is America."