The horse-drawn wagons rolled past the old cannons and the monument "To Our Confederate Defenders" at the waterfront of this most southern-minded city today, bearing a sad and history-laden cargo. Within the small wooden boxes lay the bones of 22 Rebel soldiers whose old graves had been long forgotten, covered over by a football stadium.

Men in Rebel uniforms and women in black hoop skirts and widows' veils walked behind the wagons over the five-mile distance from the Battery to Magnolia Cemetery. There, the war veterans were reinterred, about 135 years after their deaths, in a city and state still grappling with the symbols and hurts of their past.

The funeral here today, staged by Civil War reenactment groups, was billed as just that--a funeral, without political undertones. But these days in South Carolina, few current events rival the power of the Civil War and its icons to divide and inflame.

As the procession was underway, state political leaders and NAACP officials were struggling over an issue that has had serious economic and public relations consequences: The daily flying of the Confederate battle flag over the state Capitol in Columbia--a practice begun in 1962.

South Carolina is the only state that continues to do this, in spite of protests from black leaders that the flag is a racist symbol that should be removed to a historic site. Although the NAACP has urged vacationers and groups seeking convention sites to boycott the state next year--already inspiring about 80 groups and many individuals to cancel their plans--the state legislature refuses to budge.

The controversy reached new heights this week when Gov. Jim Hodges (D) offered the NAACP a deal, saying he would push for a bill recognizing the birthday of slain civil rights leader Martin Luther King Jr. as a state holiday if the NAACP would drop its boycott. South Carolina also remains the only state that has not made this gesture.

Hodges, who often has said he wants the flag moved to a memorial garden, offered to bring the involved groups together to work out a resolution and called for the creation of a state Heritage Museum that would celebrate the lives of blacks and whites during the 1860s.

But the governor's proposal fell flat, as NAACP leaders dug in their heels, saying the flag must come down, with no compromise.

"We are determined we will be successful, and we know we are doing the right thing," said Dwight C. James, executive director of the South Carolina Conference of the NAACP.

James estimated today that the boycott already has cost the state at least $80 million in lost tourism revenue.

The dispute threatened to overshadow today's ceremony, which involved an interesting story on its own.

Originally, the Confederate marines and sailors who were reinterred today were buried in the old mariners' cemetery on the Ashley River. In 1948, the city decided to build a stadium overlapping the site--later to be The Citadel's home field, the 21,000-seat Johnson Hagood Stadium. But due to a lapse in communication, the contractor removed only the tombstones of the affected graves and not the contents.

This was not discovered until members of the Confederate Heritage Trust, composed of four Charleston-based groups, began researching a few years ago the fate of the remains of the first crew of the ill-fated Confederate submarine Hunley. The submarine itself, which sank for the third and final time in 1864 after blowing up a Yankee blockade ship, was discovered off Sullivan's Island near here in 1995 by a dive team funded by best-selling author Clive Cussler. It is to be raised in 2001.

After researchers uncovered the fact that Confederate graves, including those of five Hunley crewmen, lay beneath the stadium, the Confederate group launched a campaign to exhume and relocate the remains. In June and July, 150 volunteers worked seven days a week digging through asphalt, with the military academy's blessing, to find the remains of 26 men, including four members of the Hunley crew, and a 3-year-old boy. The remains of the fifth member of the crew and of other sailors may lie underneath girders that the workers cannot reach, said Randy Burbage, chairman of the Confederate Heritage Trust.

"We thought they deserved a proper burial. They needed to be in a better place, a place of honor rather than underneath a football stadium," said Burbage, who noted that today's event was the largest burial of Confederate soldiers in the state since 1871, when the remains of 84 South Carolinians were brought home from Gettysburg, Pa.

The four Hunley crewmen will be reinterred in the spring, Burbage said.

Under gray skies that seemed to match the solemn mood, the marchers made their way through the old streets, past the historic homes with their broad piazzas. Although no one seemed critical of this event, it did tap deep feelings about the lingering legacy of the Civil War--better known around here as the War of Northern Aggression.

"I am a southerner, I love the South, and I like living in the South," said lifetime Charleston resident Danny Gilliard, 48, who is black. "But that flag on top of the Capitol is the most offensive thing I have ever seen. How would you like to walk up to a Jewish person and say, 'Here's a gas chamber--want to see it?' But that's South Carolina for you. We're the last to get anything."