VIRGINIA BEACH, SEPT. 2 -- It was exactly the kind of situation that caused this resort city to explode in racial violence last year.

Early today, several hundred black youths spilled over the sidewalks' edges into Atlantic Avenue near 18th Street, partying to music blaring from a loudspeaker set up in a car trunk. But instead of trying to clear the streets as they did a year ago, police officers stood back, quietly diverting traffic so the party could continue.

The decision was one in a long series of compromises and trade-offs that thus far have worked well enough to prevent a recurrence of last year's violence -- in which this city became a national symbol of racial strife after police attacked youths with nightsticks, and looting cost merchants $1.4 million.

But even with this progress, not all the wounds have healed. Many blacks here said their anger at the city, and over racial tensions generally, remains deep.

Although police held back from confronting youths, their massive numbers put off many visitors. And while the streets were relatively open to allow freer crowd movement and to allow police to seal off trouble spots, some black visitors said a strict system of roadblocks that forced many to move about the city by bus resurrected feelings of racial distrust.

"You make me park my car, tell me you're not responsible if something happens to it, then you bus me here to . . . this plantation," said Leon Harris, of Norfolk. "You've got grown men and women walking around with plastic bracelets on. It's like Soweto."

Thomas Wilkins, of Philadelphia, said, "The only thing different from last year is that they haven't said leave."

Today, several members of a biracial group that planned this year's event expressed relief that the city had been peaceful as Laborfest entered its last full day, and said they never expected that one year would heal all of last year's racial wounds.

"There are degrees of healing," said Mary Redd, executive director of the local Urban League and a member of the committee that organized Laborfest '90. "And everyone doesn't heal at the same time." Redd and other committee members cited the relatively low number of arrests and the fact that blacks and whites had been sharing the beach.

"I don't think that any of us thought that Laborfest would go this well," said the Rev. William J. Dale, who served on the organizing committee. "This provides a building block."

This year's Laborfest, for which the city provided planning expertise and $1.7 million in public funds, was far smaller than last year's Greekfest gathering. City officials estimated that 30,000 visitors attended Laborfest, compared with an estimated crowd of 100,000 last year. Black students at various campuses organized boycotts to express their distaste for what occurred last year.

The number of arrests, 86 through this morning for what city officials described as minor offenses, was lower than a normal summer weekend, officials said. Crowds were expected to wind down by Monday evening.

Some of the tension over national and local race relations was evident at what was supposed to be a highlight of Laborfest: two days of concerts at Redwing Park. Black audience members applauded loudly when a rap performer made fun of President Bush and said the American flag holds little significance for black Americans.

Many young blacks complained about having to be bused to the concert, and attendance was far lower than expected both days.

But through the first two days of the weekend, the unease never escalated into open conflict.

This afternoon, after some tourists were splashed by youths during a water fight in which buckets were used, the youths agreed to a police request to restrict themselves to using squirt guns. Tonight, police again blocked off Atlantic Avenue to all traffic, turning the city's main resort strip into a giant promenade.

The relatively relaxed police response to youths filling the street was a product of officers' human relations training in recent months plus common sense, said city police spokesman Lou Thurston.

In preparing for Laborfest crowds, officers were advised to "kill them with kindness," according to the Rev. Larry Edwards of Daytona Beach, Fla., who helped supervise 42 Virginia Beach area ministers who are acting as chaplains and accompanying police.

Organizers said one of the lessons of Greekfest is that even little things hold significant -- and conflicting -- symbolism for different groups. C. Oral Lambert Jr., a city official who helped organize Laborfest, said the decision to rely heavily on buses for visitors was purely logistical, adding that the city did not have enough parking for major entertainment events.

But he said organizers were aware that the system might conjure up negative images, such as school busing. "We knew about the sensitivity of African Americans to busing, so we even had to discuss whether to call the transportation shuttles or buses."

Lambert, who is white, acknowledged that many whites here also are angry about the huge effort expended on Laborfest, and about the lingering ill will from some black visitors. "The white community might ask, 'What do we have to do?' "

Members of the coordinating committee said they understood the difficulty of changing racial attitudes because they had undergone the process themselves.

When concerned citizens began meeting informally after the 1989 Greekfest disaster, Redd said, the early meetings were angry.

Over time, according to those who went on to form the core of the planning committee that emerged, that suspicion gave way to understanding.

"I don't think I have ever embraced so many white people in my entire life," Redd said.