As children, growing up half a world apart, they were enchanted by film.

There was James Ivory, in Oregon and California, son of a prosperous lumber company owner: "I loved going to the movies, I still love going to the movies. I just liked the whole" -- he pauses -- "what movies gave you."

And there was Ismail Merchant, in Bombay ("the Hollywood of India"), son of a textile merchant, a boy of 7 tagging around behind an Indian film star who was a friend of his parents. "I went around with her to studios and to premieres and I was fascinated. And I just wanted to make films from then on."

But before movie making, there would be business school at New York University for Merchant and, for Ivory, college at the University of Oregon followed by the Army and film school at the University of Southern California.

By the time they met in New York, Merchant had struggled on both coasts to be a filmmaker -- he'd already made a well-received short film, "The Creation of Woman" -- and Ivory had made "The Sword and the Flute," a small film about the history of Indian miniature paintings ("that was kind of a romantic dream of India by someone who'd never been there," Ivory says).

"I always wanted to make films in India for an international market in the English language," Merchant says.

The night in 1961 when Merchant saw "The Sword and the Flute" and met Ivory, he decided he had never met an American who understood India better. "One got the sense that this was not someone just doing a film or a documentary on the periphery, but someone with some depth and knowledge," Merchant says.

"Well, I don't know how much I understood," Ivory demurs. "I think it's more that I had a feeling for it."

Somehow, their cross-cultural interests fused them into a thriving collaboration. Their 22nd film, "Maurice," based on the E.M. Forster novel of a young man struggling to come to terms with his homosexuality in early 20th-century England, recently opened across the country. And last year, their "Room With a View," also adapted from Forster, won them their most widespread popularity yet and earned three Oscars. And, perhaps, the movie has made them rich.

"No," Ivory says expressionlessly, maybe a little glumly, settled into a couch at the Watergate Hotel the morning after a party in his and Merchant's honor.

"We've always been rich in art," Merchant says pleasantly with a smile.

Right.

For now, they are getting congratulations and celebrations. For 25 years this 50-year-old Indian-born producer and 59-year-old American director have turned out films known for a literate quality rare in the movie business. Their literary adaptations (Forster is obviously a favorite) are praised for their adherence to the text.

Last month their partnership was feted at the American Film Institute -- where a retrospective of Merchant Ivory films continues through this month. The AFI event included a black-tie showing of "Maurice" and several of the celebrity guests extended the celebration with Merchant and Ivory into the wee hours of the morning.

Actors love to work with them, affectionately recalling a familial atmosphere on the set. Budgets are astonishingly low ($2.6 million for "Maurice") while production values are high. Merchant and Ivory say simply that they get the best people for cast and crew.

"Well, they take somewhat less sometimes," Ivory says. "They'd rather work with us and be paid less than do some project for which they'd be paid much more but don't enjoy so much."

In fact, their movies sometimes seem less like art films than art prints. The interiors of "Maurice" are laden with beautiful crystal and flickering candles and stained glass. James Ivory once wanted to be a set designer and studied architecture at the University of Oregon. When their films are criticized, it's often for a lack of a feeling -- or more specifically an inability to bring it to the fore through the characters. All pretty and no passion. "Ivory is a stylist in all the subsidiary ways," Pauline Kael wrote in The New Yorker. "... And he has a fine, trained eye for light and composition. But when it comes to capturing the feel of repression and of bursting desire he isn't there."

Merchant Ivory films have literally covered the map in theme and place. Their earliest films were set in India with international casts; in the '70s there was "The Wild Party" with Raquel Welch and James Coco, set in Southern California and made with "California money"; in the '80s there have been "Heat and Dust," which cut between India and England and the past and the present, and "The Bostonians," a psychological period piece set mostly in New England.

Merhcant and Ivory chose "Maurice" because "I thought it was a good topic for the day -- people trying to find an honest and decent way to live and not live in some sort of area of deception and shadow and muddle," Ivory says. "It's Forster's constant theme. It goes through all his books."

Ivory was also attracted to the development of the book's two main characters, Clive and Maurice, from school through adulthood. "I've never had an opportunity in any of our films to show that kind of character development that goes along over a long period of time," Ivory says. "Most of our films are short periods of time."

Although this film is not sexually graphic, it does deal with homosexuality and intimacy. Ivory says he can only wait and see how the country receives it. "I have a feeling it will go okay everywhere," he says. "Maybe some areas will resist it. I wouldn't blame people in certain parts of the country if they said it was a bit much for them."

In the spring they plan to film "Slaves of New York" from a screenplay by the book's author, Tama Janowitz, who was brought to their attention through Merchant and Ivory's other longtime collaborator, novelist Ruth Prawer Jhabvala.

"I've been thinking for some time that I'd like to do some low-budget features in New York about people just trying to live in New York," Ivory says. "And I've always been interested in this phenomenon of young people coming to New York from all over the country to make it in the city. I myself did that."

Meanwhile, more scripts pour in for their consideration. "I can't even tell you," Ivory says. "Truckloads of scripts, and a lot of those are with big studios and they're what are called 'go projects.' They have the money and very often a star has said that they'd want to do it. But it's not anything I'd want to make. It's just rubbish. Everything. It's not conceivable that grown-up, educated people could have written such a script, that grown-up, educated people are going to, in fact, make that film."

Merchant Ivory films (the production company is known simply by their two last names) have both longtime fans and critics. The kind of critical and popular acclaim showered upon "A Room With a View" was a long time in coming. When you tell Ivory that "Roseland," the movie makers' account of three separate stories set in the Roseland ballroom in New York, is one of the most depressing movies you've ever seen, he tells you he's heard this -- and worse -- before.

"Well, you know, it was not a success," he says. "Ruth {Jhabvala}, Ismail and I went to the opening day of that film when it was playing in New York. We just went to sit in the audience and then Ruth went down to the ladies' room when the film was over and she heard one lady say to another, 'Imagine, making a film like that and taking people's money for a thing like that!' " He chuckles. "Judgment pronounced. And actually it was borne out. People didn't really buy that one."

Still, the two men have thrived in the business along with Jhabvala, who has written many of their movies. German-born, she grew up in England, married an Indian architect and moved to Delhi, where she was living and writing when Merchant first contacted her. She now divides her time between a home in New York (in the same Manhattan apartment building where Merchant and Ivory live) and a home in London where her husband works.

Their focus was their common passion, India. "Ruth would write as a novelist living in India," Merchant recalls of their plan, "Jim knew about India, and I wanted to make films in India."

Their initial four films were set in India.

The first, "The Householder," which opened in 1963, was about a young newlywed Indian couple and taken from Jhabvala's novel of the same name. Soon after came "Shakespeare Wallah," about an Anglo-Indian acting troupe performing the English classics in India. Both films were financed mostly by Merchant, Ivory, Jhabvala and their friends -- including Indian actor Shashi Kapoor, who starred in both films. The bulk of the $100,000 cost of their first film was financed by Ivory, who put in $75,000 from a personal trust fund.

"In 1962 that was a lot of money," Ivory says. "You know, you're not scared. What are you going to do? You'd be more scared of not making the film. To make the film is more important than to have the money. It wasn't like I would never have money again."

Though Merchant is on the set every day of filming, he rarely offers Ivory directing advice. "I've wished he had, occasionally," Ivory laments. "I'll tell you of a time he might have spoken up and didn't. That's when we did the cricket match in 'Maurice.' "

It turns out that Ivory and his cinematographer and first assistant director knew nothing about cricket, and after a day of filming, during which Merchant was present, "we somehow had failed to take a long shot of the cricket match. So Ismail sees the rushes the next day and says, 'Where's the long shot? You can't have a cricket match without a long shot.' That's the sort of useful suggestion that I wish he'd made at the time -- not in the screening room."

"I thought it would be taken," Merchant explains.

"It would be too obvious a thing not to do," Ivory sighs.

"But there is a pretty, long shot of the house," Merchant adds soothingly.

They won't divulge any big disagreements between them. ("It's hard to think -- there hasn't been a big disagreement as such," Merchant insists.) The most serious differences have been over what project to do when. "Both of us have to feel passionately about something," Merchant says.

"We're all just family, really," he continues, including Jhabvala and composer Richard Robbins. "With Ruth and Jim and myself and Richard Robbins. All four of us are like a family. We spend time together."

Merchant attributes the smoothness of the collaboration to each person being committed to a specific function, although Merchant's role seems to encompass the most tasks. In addition to the primary one of raising money, he monitors production values, enjoys cooking for cast and crew (he's pretty famous in their circle for this) and helps with casting. While Ivory talks intently about their mission in casting "Slaves of New York," Merchant says cheerfully, "I like casting!"

In their 25 years together, they have used American, Indian, British, French and Italian actors. They have been stage actors and film actors and actors you recognize from television (Christopher Cazenove of "Heat and Dust" was Ben Carrington last season on "Dynasty"), New York actors and Hollywood actors, actors who are musicians (Julie Christie's lover in "Heat and Dust") and actors who've never acted ("but who are sort of naturals," Ivory says, "who look interesting.")

Some are little known and some are box office stars working for a fraction -- one-half, one-fourth sometimes -- of what they would make on a film project with a big budget. Sometimes the actors have a percentage in the films, but that probably didn't mean much until "A Room With a View."

"The total box office all over the world is $65 million gross," Merchant says. (The film was made for $3 million.)

"Curiously, very few actors had much of a percentage in 'A Room with a View'," Ivory muses. (A handful, including Maggie Smith and Helena Bonham Carter, did, according to Merchant.)

Other alumni of Merchant Ivory films include Christopher Reeve, Vanessa Redgrave, Greta Scacchi, Sam Waterston, Geraldine Chaplin and Christopher Walken.

"We offer very good parts, and the actors also know that our films will be taken seriously, they'll be seen," says Ivory, "they'll be looked at by other directors and casting agents ... So that right there is a reason for actors -- if they like the role -- to work with us because they get very, very good exposure in one of our films."

The actors who came to the AFI party emphasized how easy it was to work with director Ivory.

"I'm not telling them exactly what to do and insisting on my line readings," Ivory explains of his technique. "I'm leaving it to them to come up with something nice. If they fail to come up with something nice or if it's the wrong thing, I jump in and correct it. But I think you have to leave actors -- who are after all artists -- you have to give them a free hand to create something. And they have to be allowed to do that first -- and show you what it is they want to do and if that doesn't suit you, then, okay, you can change it. That's how I work, and that seems to be paying off."

Ivory is an understated man who says he respects actors and finds "absurd" the notion that actors be treated like children, so he is not forthcoming on the subject of which performer has caused him trouble. But he readily acknowledges that he's had his share.

"I've worked with two or three actors who are extremely neurotic," Ivory says. "They were very very unsure of themselves, very self-absorbed: full of ego and yet at the same time having no ego in the sense of no confidence ... It's like they're so neurotic that whatever means you find for them to do something, they'll back off from that also and find some excuse for not doing that. You just have to find a million different tricks to get through."

Sometimes he can work through other actors. "I once worked with an extremely neurotic actress but she had a very good relationship with the leading man and he could suggest to her to do things in a certain way and it was as if they were collaborating as partners. So everything I wanted I always fed through him, and he would take her aside and make it seem as if she had thought of it, then she'd do it. We did two weeks on a film that way."

Generally, the Merchant Ivory sense of collaboration extends to the actors -- some of the performers with big roles in "A Room With a View" show up with small ones in "Maurice." Bonham Carter, the star of "Room," does one scene in "Maurice" as a young woman watching the cricket match.

"I wanted a proper actress to do that little cameo bit and she was with us a lot," Ivory says. "She'd come down to the country where we were doing that cricket scene, so she agreed to do it."

"You develop a kind of friendship with people," Merchant adds.

Ivory is hard pressed to explain any unifying philosophy that runs through all their films. "I can't really sort all that out. I haven't tried," he says.

"I've talked to people who've seen a film of mine and they say, 'It's so different from anything else you've ever done. I can't imagine you were the director of that other film.' And then they'd tell me what the film was and I'd think, oh, that's perfectly clear. That's just one of our Merchant Ivory films."