This Ohio industrial city, which has renewed neighborhoods with both bulldozers and historic preservation tactics, is trying it with psychology.

A low-cost method called Neighborhood Identity, being tried in three sections of the city, seeks to give these areas new identities that bring out a sense of pride among residents. It is a psychological weapon that the city hopes will trigger new private spending.

The neighborhoods range from a high-density apartment community that lies across the great Miami River from downtown Dayton to a small residential community named Wolf Creek, that was going downhill so fast it lost more than half of its population between 1973 and 1976.

For the multi-family area, with some 1,200 apartments, and only about 80 single- or two-family homes, the area was even given a new name, Grafton Hills, which helped distinguish it from Lower Riverdale, a larger area of which it was once a part.

The city invested $130,000 in federal funds in projects that help control traffic and ease a parking shortage. The city also asked property owners to upgrade the exteriors of their buildings.

Trees were planted along public thoroughfares, and attractive signs proclaiming the area's new name were scattered throughout Grafton Hills. The city also built a brick-and-wrought from entranceway at the beginning of one street that serves as an entry point for motorists driving through the community.

These tactics are frequently used by housing developers, who give easily recognized names to their developments. They also put in distinctive landscaping in an effort to spur home sales or apartment rentals.

Grafton Hill residents responded to the program by agreeing to assess themselves for high-intensity street lighting for their area, which had a high crime rate.

Crime has been dropping recently. Publicity about that earlier crime - there were four homocides in 1974, thought there were none last year - was one of the problems that the neighborhood identity program had to overcome.

James T. Dinneen, a city neighborhood planner for Grafton Hills who grew up in a tight-knit Pittsburgh neighborhood, says the neighborhood identity project differs from historic districts, where the focus is on architecture or history. Neighborhood identity, said Dinneen, builds instead on a "forgotten or misplaced identity."

Dinneen says areas involved in neighborhood identity projects should be of limited size. When a project gets much larger than 12 to 15 blocks, it loses its effectiveness. Neighborhoods are what people perceive them to be, he says, and people think in terms of small areas.

Ironically, one of the city's neighborhood identity projects, which was to have been concentrated on a small area, now has become far more than that. Under political pressure, the $260,000 venture was expanded to cover an area of 32,000 people, hardly a neighborhood.

Dinneen said the city's expenditure in that large area will have benefits but he acknowledges that it is no longer a neighborhood identity project.

The third project did take on a small area with some 900 people. It tackled a rapidly fading community with $160,000 in home improvement grants and loans, $12,000 for a park, $10,349 for trees.

How much does the program help? Neighborhood planner Dinneen sites renewed interest in Grafton Hill as a place to live. "It's definitely become a legitimate choice now for people that are looking for apartments," he said. The area, once identified with crime, is now perceived more positively, he pointed out.

As for Wolf Creek, the identity project there has had a conscienceness-raising effect, said neighborhood planner Allan C. Lane.

Residents now have a sense of "turf," he said.