LOS ANGELES -- In its heyday, the 71-year-old Ambassador Hotel was a popular hangout for the rich and famous, celebrities and politicians alike -- one of the city's first luxury hotels and home of the famous Cocoanut Grove nightclub.

Since Robert F. Kennedy's assassination there in 1968, the landmark hotel has seen troubled times, financially and structurally. The hotel closed its doors last year and the 23.5-acre site west of downtown was sold for $64 million. In January, New York billionaire Donald Trump, before his marital and financial troubles, paid $12 million for a 20 percent share of the investment group that owns the site, renamed the group Trump Wilshire Associates and announced a $1 billion-plus commercial and residential redevelopment project.

When it decided to build a new high school on the Ambassador site and initiated eminent domain procedures to acquire the rear 17.8 acres, the Los Angeles City Board of Education entered into a high-profile battle with the Trump organization. The site is centrally located in one of the Los Angeles Unified School District's many overcrowded areas, and the dispute creates a unique clash between the Los Angeles school system, second largest in the nation and one of its most overcrowded, and the well-publicized New York real estate tycoon who previously had not been a major figure on the West Coast.

In a district with more than 610,000 students and year-round schedules to accommodate the growing immigrant population, a new high school in an area that buses more than 4,500 students daily at an annual cost of $4 million appears necessary, but opposition comes from all sides, including Mayor Tom Bradley's office, the Wilshire Chamber of Commerce, local residents and the Trump organization.

"It's really not Trump versus the school board," said Wilshire Chamber of Commerce President Betty Peters. "It's whether we want to develop that land or build a school on it."

Local residents and businesses say the mid-Wilshire district is in need of revitalization. "We definitely want something significant in our community," Peters said. "A school would be a deterrent to drawing business." Alternate sites in the community are more appropriate and cost less, she said.

The school district estimates the worth of the 17.8 acres at $47.9 million. The State Board of Allocation approved $50 million to purchase the site, but construction costs have not been determined. Trump officials say the entire property was recently appraised at $150 million.

"It will end up being the most expensive school in California history," said Mark Fabiani, deputy mayor and Bradley's chief of staff. The move comes at a time when the school district faces its own financial troubles, having recently closed a $220 million gap in its 1991 budget.

The school board filed a lawsuit, the first formal action in condemnation procedures, in Los Angeles Superior Court this summer. Board President Jackie Goldberg did not return phone calls to her office, and Roberta Weintraub, chair of the board's building committee, declined comment.

"The mayor does want a school to be built in that area," Fabiani said, but suggests an alternate site because of the tremendous cost of the Ambassador property, the school district's limited resources and the prospect of a lengthly court battle. "They'll end up bankrupting other programs to build on this site," he said.

The school board first studied the Ambassador in March 1987, more than a year before the J. Myer Schine family sold the property to Wilshire Center Partners in September 1989. Negotiations between the school board and developers continued until this April, when the board announced it would no longer consider alternate sites.

"One of the critical issues becomes the penalized children," said Robert Booker, chief business and financial officer for the school district. Children who live in metropolitan areas should not be denied access to convenient public education because of rising land costs, he said. "Land costs are going to be expensive any place within that area."

The school board voted 7 to 0 to confiscate the Ambassador site because it displaces only 22 residents -- the fewest of all the sites studied -- and has joint-use possibilities since a school for 3,000 students on the rear acreage would leave land along Wilshire Boulevard free for commercial development.

When there was talk in January of building the world's tallest skyscraper on the site, Trump rejected Bradley's request to provide affordable housing in other areas of the city while scaling back his plans for the Ambassador site.

Barbara Res, executive vice president of the Trump organization, said the joint-use plan will not work. "Schools and businesses do not go very well together," she said. "It's not safe for the kids, and it's unfair to the businesses to have 3,000 school kids running through."

A Trump organization lawsuit charges the school board with violating California environmental reporting laws and calls for a new environmental impact report that would make public the board's decision-making process in choosing the Ambassador site.

The organization's plans are on hold, "waiting for the school board to do the next thing," Res said. "We intended to have a California version of a Rockefeller {Center} with the flavor and style of Los Angeles . . . but at this point in time, we can't plan anything."

A lengthy court battle is expected should the Trump organization contest the school board's appraisal of the site.

The Los Angeles Conservancy filed a lawsuit last year against the school board to prevent it from demolishing the hotel, which is eligible for listing on the National Register of Historic Places. The suit, settled in April, calls for preservation of the hotel because of its historic importance to the city. A consultant hired by the school board will determine whether preservation is possible and adaptable into the school's plans.