After months of wrangling over the fate of the expanding strip of nightspots and restaurants in Adams-Morgan, residents are asking the city to limit the size and number of new eateries there with a tough new policy on liquor license approvals.

Proponents say the policy will keep Adams-Morgan the way it is and prevent large uspcale restaurants from displacing the small ethnic ones.

Critics say the policy has the potential to do just the reverse: Limiting licenses will make them so valuable, they say, that small restaurants won't be able to afford them.

Since 1980, the number of restaurants in Adams-Morgan has more than doubled to 67. Community leaders complain that the impact has been the loss of service businesses such as hardware stores and dry cleaners, and an influx of diners and revelers who keep them up at night and park on their residential streets.

Some residents called for a blanket moratorium on new liquor licenses in Adams-Morgan, pointing to the success of a moratorium in Georgetown. The move organized restaurant owners to try to negotiate.

The negotiations went on for months, until civic leaders and restaurateurs announced an agreement last week to ban new nightclubs; limit to about five the number of new restaurants that can open in the next five years; and allow restaurants to expand to no more than 125 seats.

The policy, proposed by the local Advisory Neighborhood Commission, must be approved by the D.C. Alcoholic Beverage Control Board. If approved, it will set clear ground rules for investors, business owners and residents over what kinds of liquor license applications the ANC will support, the leaders said.

Roberto Alvarez, owner of Cafe Atlantico on Columbia Road NW and head of 50 organized restaurateurs, said the compromise was the only way to prevent a moratorium.

"We don't want to say we agree with this," Alvarez said. "But we can live with this agreement."

George Frain, of the 18th Street and Columbia Road Business Association, said the compromise was a tough decision. "We swallowed hard when that thing was adopted."

But Victor Kibunja, owner of Kilimanjaro nightclub, criticized it, saying Adams-Morgan is "still in its growing stages, and the ANC is not going to let it grow to its full potential."

Pat Patrick, vice president of the business group, said he worries that the limits will inflate the value of liquor licenses and make it more difficult for small ethnic restaurants to get started. That, combined with rising real estate values, could result in allowing only the most upscale restaurants to survive.

Some residents contend that the ANC caved in and agreed to a policy that won't solve the parking and public drinking problems.

Stephen Coleman, head of the Reede-Cooke Neighborhood Association, said the ANC should have asked for a moratorium. He said the area has become an "alcohol playland," where drunken customers wake up residents, urinate on their lawns and sell drugs in alleys.

Last fall, the Georgetown ANC and business owners agreed to support a moratorium, a policy that was adopted by the Alcoholic Beverage Control Board.

But Alvarez said Georgetown businesses wanted a moratorium because it makes their liquor licenses more valuable and eliminates competition from new restaurants. Alvarez said the Adams-Morgan businesses opposed a moratorium because they believe competition is needed to keep their popular restaurant area vibrant.

"Restaurants in Adams-Morgan are owned by a healthy dose of different nationalities and minorities, and are a lot closer to the free-enterprise ideal than Georgetown," he said.