Housing and Urban Development Secretary Andrew M. Cuomo yesterday seized control of New York's federal homeless funds from Mayor Rudolph W. Giuliani (R), creating a new firestorm in the tempestuous Senate race he had considered entering himself.

Cuomo announced that he is barring City Hall from administering about $59 million worth of grants, an unprecedented move for the Department of Housing and Urban Development. The Queens native said he was taking action in direct response to a federal judge's recent ruling that Giuliani had improperly blocked HUD grants to groups that had criticized his policies.

But at a news conference yesterday, the pugnacious mayor attacked the decision as pure Democratic politics, describing Cuomo's department as a "political patronage operation." Giuliani is locked in a furious, though still undeclared, Senate race against Hillary Rodham Clinton (D), who has been blasting his get-tough policies toward homeless people, and who recently hired the head of Cuomo's HUD office in New York to run her campaign.

"It's quite apparent that he's brought his politicizing of HUD to New York," Giuliani fumed. "In essence, he wants to take over and give the money to his political operatives."

But in his testimony during a State Assembly hearing on Giuliani's homelessness policies yesterday, Cuomo said the mayor is the one playing politics with the issue. He cited a Nov. 12 decision by U.S. District Judge Allen Schwartz, who found that the city improperly downgraded a grant application by a group called Housing Works after it staged rallies savaging Giuliani. Schwartz ruled that there was "substantial evidence of retaliatory intent" by the mayor, accusing him of "hostility," "aberrant behavior" and "antagonism toward Housing Works."

HUD will now oversee the distribution of more than $50 million in federal funds, a switch that Cuomo acknowledged was "drastic."

"Our action won't cut funding to homeless programs in New York City by a single penny, but will make sure that federal dollars go to the right programs," said Cuomo, who was the last prominent New York Democrat to bow out of the Senate race before the first lady leapt into the vacuum.

This shouting match between two of America's feistiest politicians erupted in front of a serious backdrop--a major battle developing in New York over the proper way to deal with people who live on the street. Of course, there is a heavy element of politics, with Giuliani tacking right as he tries to nail down the endorsement of the state's Conservative Party, and Clinton veering left as she shores up her liberal base. But the debate has a substantive element as well, highlighting an unresolved national dispute over the right to shelter.

In October, Giuliani announced that able-bodied homeless people would be required to work as a condition of shelter, and that children of anyone who refused would be forced into foster care. Then in November, after a homeless man attacked a woman in midtown Manhattan with a brick, Giuliani's police arrested hundreds of homeless people in a sweep, and the mayor announced that they had no right to sleep on the street.

The mayor's budget for next year includes a $40 million increase for homeless services, but his recent crackdown has prompted a blizzard of opposition from celebrities such as Rosie O'Donnell, Tim Robbins and Al Sharpton. The first lady jumped into the fray as well, declaring that "locking people up for a day will not take a single homeless person off the streets." Giuliani responded icily that people who are not familiar with New York--read Hillary Rodham Clinton--might not understand the complexity of the problem there.

Cuomo added his voice to the outcry yesterday, bemoaning that New York has "reverted back to the days when we were dealing with the issue with emotion and hype." When he was living in New York in 1986, Cuomo founded an organization that helped change America's approach to homelessness, by providing mental health and substance-abuse services as well as homes. In his testimony, he complained that Giuliani has ignored the roots of the problem.

"Arrest criminals, but don't criminalize homelessness," Cuomo said. "The homeless are not our enemies. They are our brothers and sisters."

"There is nothing to be gained in ignoring people living on the streets and romanticizing homelessness into some issue that it really isn't," Giuliani said recently.

CAPTION: HUD Secretary Andrew M. Cuomo cited Mayor Giuliani's actions.