Over nearly seven years, D.C. Mayor Anthony A. Williams has led the nation's capital out of financial crisis, revitalized its once-shabby downtown and set in motion a dramatic transformation of its neighborhoods and waterfront. But as office towers and glossy boutiques have sprouted across town, poverty and joblessness have deepened.

Yesterday, as Williams announced plans to retire from public life, reactions suggest that he will leave a city that is both grateful and angry -- and searching for a leader who can bridge the divide between economic progress and social justice.

"Anthony Williams gave the city a facelift, but he didn't lift up the rest of the city," said Theresa Burton, 69, whose Mount Vernon Square neighborhood is filling up with luxury condominiums that neither she nor her neighbors can afford. "You know what he was telling the city with all this development? He was telling the poor people to get out because none of them can afford to live in the Washington, D.C., he was creating."

In an address to more than 300 supporters at the Hillcrest Community Center in Southeast, Williams (D) took credit for an array of accomplishments. In a city that once faced a $518 million deficit, he amassed record cash reserves, imposed discipline on a dysfunctional bureaucracy, eliminated the need for a federal financial control board and negotiated the return of major league baseball.

"As mayor, I've led this city to, I believe, the threshold of real greatness. I believe that I've gotten us to a point where we've opened the door and prepared this city to walk through that door," Williams said in his speech. "But I have come to tell you today that I will not be the one to lead you through that door."

Supporters mourned his decision not to seek a third term. "I'm sad for the District. He was never appreciated for what he's done," said Barbara Savage, a Ward 7 resident who helped launch the movement that drafted Williams to run for mayor in 1998. "We don't have to be embarrassed to say we're from Washington anymore."

But even Williams acknowledged huge failures. Public schools have not improved, and the divide between rich and poor has sharpened. Thirty-seven percent of residents older than 25 have trouble filling out a job application or reading a map, one of the highest rates of functional illiteracy in the nation, according to "The State of Literacy in America," a government report.

In an interview, Williams said his political shortcomings have contributed to the perception that he has done little to lift up the poor. "It would be great for the city," he said, if his successor could help people trapped in chronic poverty to recognize that the city's growing wealth holds opportunity for them as well.

"If the next mayor can actually talk to people and appeal to people's own sense of self-respect and responsibility and determination, that's hugely important," Williams said. "But if the new mayor is all about throwing raw meat out to whatever crowd he or she is talking to, that's not going to be helpful."

Williams's decision to retire next year throws his job up for grabs at a pivotal moment in the city's history. Five Democrats have entered the race. Most are struggling to respond to the clamor for better schools, more affordable housing and more generous social programs while reassuring affluent homeowners and the business community that they will maintain Williams's policies of fiscal responsibility.

Even before Williams formally declared his intentions yesterday, three candidates started vying for his favor, as well as the cash and endorsements of his supporters. Former telecommunications executive Marie C. Johns and D.C. Council member Vincent B. Orange Sr. (Ward 5) sent out news releases praising Williams, and council Chairman Linda W. Cropp said she would immediately start courting Williams loyalists.

The other candidates -- council member Adrian M. Fenty (Ward 4) and lobbyist Michael A. Brown -- were silent about Williams's announcement. On the campaign trail, both men have criticized the mayor and have made explicit appeals to those who feel left out of the economic recovery.

In dozens of interviews across town yesterday, residents expressed a deep ambivalence about the changes Williams has wrought. They praised the mayor for improving basic services, making sure their garbage is collected and their potholes get filled. But they worried about paying skyrocketing property taxes and about seeing their children priced out of the neighborhoods where they were born.

Along Seventh Street NW, where upscale boutiques, restaurants and art galleries have replaced abandoned buildings and parking lots littered with trash, Edward Fisher leaned against a concrete wall at the Gallery Place-Chinatown Metro station and complained about soaring property values.

"In another two years, taxes are going to be so high that black folks can't live here," said Fisher, 53, a city trash truck driver on leave with an injury. "I'm glad to see certain things happen in the city. But the rich get richer, the poor get poorer and a lot of people get displaced."

That tension was also evident along H Street NE, where chic new restaurants are starting to appear alongside faded discount marts and liquor stores. At Smokey's Barber Shop and Oldies near H and 14th streets, men who have gone there for fades and shaves for nearly 30 years ranted about Williams between tirades about the Redskins and the Nationals.

"I said, 'Good! Go! And take his bow tie with him,' " said Kenneth Moore, 60, who lived in the District for 27 years before moving to Prince George's County. "It's time for a change. He was for the big business but not for the small people."

Across the street, Phish Tea Cafe opened a year ago with colorful banners, eggplant walls and a Jamaican lunch buffet. "I think Williams has done some good for the city. We're getting better services. Overall, the image of the city is better," said owner Andrew Harris, 42.

Another new cafe, the R&B Coffeehouse, opened seven months ago. Kim Jones, 37, sat at the elegant, tiled bar surrounded by latte-colored walls and wondered about the District's future.

"I think the city has been revitalized in a lot of ways. I think it's great in a lot of ways," she said. "But more than ever, people are struggling, hustling to make ends meet. People who have good jobs, good salaries, they're barely making it now. This city is almost as expensive as Manhattan."

Williams heard no complaints yesterday at the community center. When he strode into the gym, more than 300 staff members and supporters leapt to their feet, filling the room with cheers and applause. They chanted his name and, when he took the stage, a group in back started shouting, "Four more years!"

The event was more celebration than farewell. Williams was smiling and loose. When a bee forced his allergic wife to jump out of her seat onstage, Williams joked that he had hoped she was "really getting into my speech."

Williams declined to say what he plans to do next, advising his supporters to "stay tuned." But the Los Angeles native does plan to buy a house in the District after years of living in a rented Foggy Bottom apartment. Once you serve as mayor someplace, he said, "you really are part of that city forever."

As they mourned Williams's decision, his supporters had trouble conjuring a clear image of the city's future without him.

"The next mayor is going to have a tough job," said Dan Wedderburn, a member of the Democratic State Committee who lives in Ward 2. "We need to now focus on the less privileged and our public schools, which continue to be a major impediment to continued progress of the city. That's not going to be easy."

Staff writers Karlyn Barker, D'Vera Cohn, Petula Dvorak, V. Dion Haynes, Hamil R. Harris, Nia-Malika Henderson and Yolanda Woodlee and staff researcher Bobbye Pratt contributed to this report.

Mayor Anthony A. Williams says the District is at "the threshold of real greatness," but he acknowledges a need to do more for the poor.

Williams advised supporters to "stay tuned" for his next step. He plans to buy a house after years of living in a rented Foggy Bottom apartment.