As angry business owners picketed the District Building yesterday, Mayor Marion Barry defended the city's new restrictions on street vendors, saying they already had reduced the number of licensed vendors from 5,300 to 1,594 while allowing legitimate vendors to sell most forms of merchandise.

Barry said he would not bow to continued pressure from business groups seeking further restrictions beyond those that took effect in July, which reduced the ranks of vendors and limited their hours, locations and goods.

"I happen to believe in vending," Barry said at his monthly press conference. "A number of people in this town got started in business as vendors. A number of people who came to this country from abroad got started as vendors. It is tough being a vendor."

The city will publish its proposed final vending rules early next month, with the only significant change from current rules being the elimination of a controversial requirement that vendors use wooden pushcarts with wheels and prescribed color schemes. Instead, vendors will be allowed to use their customary folding tables, but they must have "skirts" that hang to the sidewalk to conceal clutter, Barry said.

The city government's year-long wrangling over vending rules has failed to silence criticism from business owners, who charged yesterday that the city has yet to crack down on vendors who are clogging sidewalks, violating traffic laws, littering and cheating the city out of substantial tax revenues.

"We are really angry, and the mayor is deaf," said John Reno, a spokesman for the Connecticut Avenue Small Business Owners.

Reno, an architect, was one of a dozen picketers from five retail associations angered at what they see as unfair competition from vendors. Those protesting yesterday included the Downtown Retail Merchants Association and groups from Georgetown, Capitol Hill and Adams-Morgan. They want the city to confine vendors to centralized vending areas and step up enforcement of sales-tax collections and the new rules.

"We clean up their mess. We pay the taxes and they don't," said Stanley Conway, owner of District Hardware in Dupont Circle. "They hog the parking spaces . . . . They get away with murder."

The new restrictions that led to the sharp reduction in street vendors included increasing bond requirements from $100 to $500; increasing Class A license fees from $15 to $130; requiring improved record-keeping to increase sales-tax collections; banning overnight storage at vending sites, and prohibiting sales of drug paraphernalia, pornographic material, luggage, power tools, live animals and appliances.

A key provision that limits vending is the requirement that vendors operate only on sidewalks that are at least 18 feet wide and provide a minimum 12-foot clearance for pedestrians, according to Ben Johnson, administrator of the D.C. Business Regulation Administration. He said that rule bans vendors from parts of Dupont Circle and Connecticut Avenue. Vendors also must allow 10 feet between carts and cannot block doorways, parking meters, hydrants or bus stops.

"We feel we have struck a balance between the needs of vendors and merchants," Johnson said.

Merchants said vendors are cheating the city out of an estimated $3.5 million a year by not paying sales taxes and that enforcement has been lax.

Barry said their estimate was inflated and that police have issued 630 $50 tickets for vending violations since July. The mayor also took a jab at the picketing business owners, saying, "I think it's great they're out there picketing. It's probably the first time they have picketed in their lives. Maybe I can get them to picket for some other activities, like civil rights, South Africa and a couple of other things."