A Georgetown antique shop, The Canal Company, is alive, well and prospering within sight of the notorious intersection of 14th and U streets NW and within touching distance of the drifting crowds of drug dealers, addicts and prostitutes who have long claimed this main street in the heart of the inner city for themselves.

A jumble of elegant mantels, oak doors, brass and glass chandeliers and other architectural oddities from local Victorian houses crowd the two-story, red-brick building with the modest sign and a blackened ceiling charred during the 1968 riots. A steady stream of well-heeled customers have made the inner city branch a success for Jeff Yudin, the 34-year-old owner.

One block away at 14th and S streets, the Source Theatre Company rented a former print shop and opened its first play, Shakespeare's "Henry V," in June. Now completing its third play, the company's creative director, Bart Whiteman, feels they made the right decision to move to 14th Street. "Sure, it's a little scarey here. But we're downtown. We can afford the rent. And people are coming to see us," he said.

Whiteman's company has all white members and so are most of the people in his audiences. They come from Washington, Virginia and Maryland, and even some tourists from Iowa and Idaho, who see the theater listed in entertainment calendars and have no idea what kind of neighborhood it is.

But business is falling off around the corner on U Street at the aromatic Ben's Chili Bowl, a brightly lit restaurant with a sign in the window that proclaims, "Our chili will make your hot dog bark," where owner Ben Ali has been serving up spicy half-smokes smothered with chili, mustard and onions for 30 years.

Ali has been watching the commercial life of the 14th and U streets, from the vantage point of his large plate-glass window. "It is dying in terms of an old neighborhood," he said. "When Metro is in place (in 1889 at 13th and U streets), the developers will come and redevelop the area. That will be the end of the cycle for the blacks here, and then the cycle will start again for a new neighborhood."

The 14th and U streets area is in many respects the least likely place to attract new residents and new business, plagued as it is by some of the most serious crime in the city, an abundance of empty and boarded up buildings, and a large, impoverished black population.

But the new neighborhood cycle appears to have started already here without the Metro opening and without any fanfare. Compared to Washington's other changing neighborhoods -- Shaw, Dupont Circle and Capitol Hill, for instance -- this development is unique. Ordinarily, commercial development lags five to seven years behind residential changeover.Here on one of the last frontiers of the "urban pioneer movement," both are happening simultaneously.

Residential prices have escalated to $80,000 for shells and $150,000 for finished homes. It is no longer an area of the city where buyers can purchase cheaply ahead of the crowds in the hope of getting in on the ground floor of a soon-to-develop, trendy neighborhood. "It's already happened here. This is no longer the hot spot," said real estate agent Brian Logan of Long and Foster.

Yudin opened the Canal Company of Georgetown branch last November. "In business, you have to gamble, and I'm gambling this neighborhood will come up," Yudin said.

"I was looking for a commercial neighborhood between Connecticut Avenue and the Capitol and I found it here. I needed a space large enough for all the mantels and doors, and this place has it. I also needed a place convenient to downtown so that people in the city could reach me easily, and a place on a main street, so that people driving home at night could stop by easily," he said.

Whiteman, artistic director of the Source Theatre Company, moved his three-year-old company to 14th and S streets in May. "It is the perfect building for us. We can seat 45 people. And the building is solid and in good shape. We can offer our customers parking on the street and we have two small lots nearby. Now, how many theaters can offer that?" Whiteman asked.

"We get listed in the paper with all the biggies. The tourists don't know that we're different than the Kennedy Center. And that's what I'm talking about here. If you don't know this is the old riot area, you just come and say, oh well, it's just the city."

Real estate agents have had a hard time coming up with what they consider an acceptable name for an area no one wants to refer to as 14th Street. That name conjures up images of the 1968 riots, which started near 14th and U streets and destroyed many of the buildings and businesses in the area. The suggestions range from Dupont Circle East-East, Logan Circle North-North, Meridian Hill South, Greater Logan Circle and the improbably White House North. (The White House is a mile and a half away.) Brochures that advertise new housing near 14th and U streets often leave 14th Street completely off the accompanying maps.

The neighborhood's Victorian homes did not always have an identity problem. After the turn of the century, it was considered a very exclusive area for black residents. It was referred to as the Harlem of Washington and was compared favorably to fashionable Connecticut Avenue.

Wilmar Day moved with her family to her 13th Street home near U Street in 1919. "It was very nice," she said. "There were doctors, lawyers and teachers living here then. On Sunday afternoon we'd dress up and promenade U Street and then go to an ice cream parlor on 14th Street.

"Now," she said sadly, "it's the lowest of the lowest slums. It's a heart-sickening thing to have been part of that life and now to have to live like this."

Day said that the heavy drug traffic and the accompanying high crime rate in her neighborhood keep her at home most of the time. "I've been broken into three times. I sometimes stay up late at night just to keep them (the drug dealers and addicts) from throwing stuff on my front yard. Now I've put bars everywhere and my friends say I'm creating a firetrap," she said."Well, I'd prefer a fire trap to worrying about break-ins."

The threat of crime hasn't deterred a number of middle-class whites from moving into Day's block. Her neighbor, real estate dealer Richard Gardner, who moved in two doors away, has bars on his windows and doors, but little fear in his heart.

"This is clearly the coming neighborhood," said Gardner, who has struck a truce of sorts with the drug sellers who use the sidewalk outside his house for their business dealings. "I let them lean against my iron fence if they agree not to throw stuff in my front yard," he said. Recently, when he was returning home late at night, someone approached him on the dark street as he left his car. "I heard a voice from the dark say, 'Hey, leave him alone, he's okay. He lives here.'" said Gardner.

The high crime level has taken its toll of the business community. Few businesses survived the riots and fewer yet are in business today on the streets once crowded with pedestrians but now replaced with shifting crowds of junkies.

Irving (Duke) Johnson is one of the survivors. He has been holding court in his tiny shoe repair shop at the corner of 13th and U streets for 22 years. He is known for his super shoe shines, his careful shoe repair and his strong opinions.

"Violence and dope dealers are what's killing the street," he said, as he cut a new heel for 84-year-old Edith Matthews' favorite white walking shoes. Keeping up a steady banter with his customers over the blaring radio, Johnson declared, "The name of the game is money, and the whites have got the money, and they sure aren't spending it around here. I hear that things are changing around here, but I don't see any change," he said.

Matthews, who got the new heels done by Duke Johnson for $1 ($2 off the usual price for senior citizens) walked carefully down U Street back to her new home at Campbell Heights, a high-rise building for the elderly at 15th and U streets on the site of the old Dunbar Hotel. "This neighborhood is not safe," she said. "But I put my head up in the air and hold my pocketbook tight, and I get around," she said.

Campbell Heights and another new housing complex, Portner Place next door, which replaced the popular Booker T. Theatre, have drastically altered the landscape of U Street west of 15th Street. Three row houses and an empty lot share the block with the new buildings.

Further down the street in the 1700 block, Jane Glennie has carved six condominiums out of a brick row house. Named The Bay-Lee House after her architect, Glennie said she saw the project as a hobby and a challenge. "This was my first venture in real estate," said the Rockville resident." "It seemed like a good investment. I'm interested in seeing downtown rebuilt and I was willing to put my money where my mouth is," she said. According to Glennie, she has sold four of the six condominiums for prices ranging from $86,000 to $119,000.

Bill Bernett, who runs the C & B Delicatessen seven days a week, doesn't expect to get any new customers from Glennie's condominiums. "Most of my old customers have left the neighborhood," said Bernett. "My best customers now are the construction workers who come by in the morning for a sausage and egg sandwich. The government workers just buy a newspaper, and those upper-class people moving into the condos won't even come here."

Not all businesses are suffering with the changing face of their area. Alvin Maurice Simmons, manager of the Lincoln Theatre, the last movie house on U Street, said business is very good for him. The paint is peeling on the building and the LIN is lost from the sign, but he still regularly sells out his martial arts movies on weekends.

"We used to get a young, all-black audience," the 29-year-old manager said. "Now we have about one-third whites with a good mix of senior citizens and families as well as kids. We're showing the same movies but the audience has changed."

This week the crowds are watching "The Big Brawl," "Enter the Dragon," and "Return of the Tiger."

A liquor store owner on 14th Street who did not want to be identified for fear of antagonizing the old residents, has kept most of his stock and his display the same except for one far corner of the room. "Over there," he said, "I have the imported wines." When his new white customers started asking for different products, he decided to accommodate them. "Most of my customers went 'pluck' (cheap, sweet wine) and half-pints. But now I have clientele who entertain, and they want jug wine and more the half-pints," he said.

The liquor store dealer is considering more changes. "You run a business acording to the area. In the ghetto, you don't have carpeting and chandeliers," he said. "But when your clientele changes, you need to spend some money to show your new customers that you see them."

A vigorous debate between a father and son, both owners of the same business, is going on as to what if any changes to make at the Sunny South Market at the corner of 14th and T. The father, Paul Clement Sr., bemoans the loss of 40 percent of the business, mostly through displacement. "A lot of my customers have moved to the Southwest," said the 67-year old grocer who bought the market immediately following the riots. "I can't stand another year of this. I may have to sell the place."

His son, Paul Clement Jr., 42, stood out front of the corner market, which specializes in country meats and fresh fish. "You have to change with the times," he said. "I have to be ready for both the old and the new customers. If you wanted a cut of chateau-briand or a bottle of Rothschild whatever and I had it, you'd come here."

The younger Clement plans to apply for a loan to remodel the tiny market and start by adding wine and cheese to the existing stock. "Without change, there is no survival," he said.

Just surviving is what concerns John Snipes, president of the Shaw Business and Professional Association, who runs Butch's Place, a variety store at 1231 U St. "Our main function is to gather our resources and keep people here," he said. "When redevelopment comes, we don't want to be developed out."

The strong current of change in the old neighborhood is what disturbs Ibrahim Mumin, executive director of the Shaw Project Area Committee (Shaw PAC), the citizen advisory group that is consulted on development plans for the area bounded by North Capitol, 15th Street, and M Street to Florida Avenue, NW.

Of particular concern to Mumin is the threat to the long-term businesses."The local businesses have weathered the storm of stickups, high crime and drugs. Now that the area is on the verge of being refurbished, we don't want them to be kicked aside," he said.

Mumin said his group is also "much involved and concerned about displacement (of residents) in that area. We realized that Caucasians are moving in. We're not racist, but we want the Afro-American community to be a part of that change," he said. "We are working with the tenants to buy their buildings and with longtime renters to buy their homes."

Wilmar Day, who has watched her neighborhood go down, has enthusiastically welcomed the arrival of new middle-class neighbors.

"The future of this neighborhood is white, and whites are okay with me," she said. "You could take a picture of me with a great big smile and put 'great' over it."

Day, a tiny woman dressed in a bright green pants suit and large gold earrings, talked with her neighbor, real estate man Richard Gardner, outside their red brick row houses. "I don't want to be driven out of my home (by crime). My mother always told me not to run from trouble. And that's what I tell Mr. Gardner here. I tell him not to run," she said.