WHEN BILL CLINTON THINKS OF NATIONAL SERVICE, this is what he sees:

A roomful of earnest young people talking about as part of a program called City Year, they have d the apartments of frail seniors, tutored in inner-city schools and fixed up community playgrounds. As Clinton campaigned for the New Hampshire primary in December 1991 and listened to these stories, he was struck by the racial and social mix of the young workers. Yes, there was a former drug dealer from Boston, but alongside him was a prepschool student from Texas and a working-class white from South Boston. One by one they talked about how serving together had forced them to shed prejudices and opened up new worlds. Visibly moved, Clinton told them, “You make a statement every day that there is an American community.”

Here is a reality Clinton must deal with:

Last June the White House launched the Summer of Service to demonstrate what service could do. Seventy-five percent of participants at the training retreat near San Francisco were minorities. By the third day the 1,500 young people from around the country had split into black, Hispanic, Native American and gay/lesbian/bisexual caucuses. Some of the African-American groups debated whether whites should even be allowed to attend their meetings. Vegetarians complained that organizers hadn’t attended to their needs. Students berated Eli Segal, the head of the White House Office of National Service, about gays in the military, the failures of the federal government and the need for the program to politically organize poor people to demand benefits. “I almost thought we were going to have a riot,” said one official who helped organize the retreat.

In Bill Clinton’s ideal world, all things are possible. You can help the middle class and uplift the poor, convince blacks and whites to serve side by side, and make government work without wasting the taxpayers’ money But the political reality is that the great liberal ideals of the Democratic Party have been soured by the persistent divisions of race and class. In many precincts, hope and idealism have been replaced with cynicism and isolationism. Clinton tried to replace Washington’s prevailing “got mine” attitude with the message he took from John F. Kennedy’s “ask not what your country can do for you.” But the demands of class and race kept intruding into his plans. A compromiser at heart, Clinton in the end had to settle for less. Last week Congress passed Clinton’s national service plan. Even after all the dealmaking and ducking, the president achieved something significant: a plan that will ask thousands of young Americans to perform some national service in exchange for help with their college education. And his program will rely on a burgeoning collection of successful local service corps. But the program is far from -what Clinton once promised. Many have noted its modest size. More important, it is not the engine for social and racial integration that he envisaged as he listened to the young work mates of City Year.

Ten months ago NEWSWEEK launched a special project designed to track the national service initiative’s dramatic but barely reported journey from campaign applause line to law. The obstacles Clinton faced along the way show how difficult it will be for “New Democrats” to “reinvent government” and restore the idealism that moved Clinton as a young high-school student shaking JFK’s hand 30 years ago.

During the early months of the campaign, Clinton’s political advisers rolled their eyes whenever the candidate started talking about a national program to encourage young people to serve their country. “Every candidate has one of these things,” James Carville said later, speaking as if it were a bad habit, like bingeing on Big Macs. “You humor him and you move on.”

The joking stopped once the aides heard the applause. Clinton’s plan–to reward service with a college scholarship–was the most consistent crowd-pleaser in his stump speeches. Clinton had melded two controversial ideas into a proposal designed to please everyone. just asking for service would have appealed to a narrow sliver of do-gooders. On the other hand, just offering bundles in college aid would have seemed like profligate “tax and spend” liberalism. But put the two together and Clinton sounded like a New Democrat who preserved the best of his party’s past while junking the worst. Yes, Clinton was saying, government does have a role to play in improving society. But people can’t just ask for handouts. They should have to give something back.

Crowds loved Clinton’s stock speech line about his “domestic GI Bill.” There was only one problem: it was wildly expensive. If he really allowed all students to wipe out all of their loans, the program could cost as much as $40 billion. Of course, not everybody would want to serve, but even if just 3 percent of those with loans did–as the campaign predicted–it would still cost $8 billion, more than the government now spends on the entire student-loan program.

During the campaign, reality did not intrude. Aides who gingerly asked about the true cost of the program were told to be quiet. But when Clinton as president had to produce his first federal budget, he shrank his promise considerably: $3.4 billion by 1997. That would fund 70,000 students–four times as many, Clinton liked to point out, as were enrolled by the Peace Corps during its heyday–but hardly the scholarships-for-all he had initially promised. So before Clinton’s plan was even introduced to Congress, it had been radically scaled back. And the real fight, over the true mission of national service, had not yet begun.

At its core, Clinton’s proposal changed the government’s approach to helping people go to college. For the past 30 years Congress has given out financial aid based almost [rely on who needs it most. Income, not ability, has been the criterion. Attempts to tie aid to academic merit were viewed as anti-democratic. Clinton’s national service program contained a new message: the government will still give aid according to need but will give more money to those who serve their country.

A seemingly worthy ideal, but it was deeply worrisome to the colleges and universities that rely on–and lobby for–federal education aid. The significance of Clinton’s shift was not lost on former congressman William Gray III, the president of the United Negro College Fund. Gray believed the approach seriously threatened his schools and their students, many of whom survive on Pell grants, the no-strings-attached scholarships for the needy. On March 25, Gray summoned other leaders of higher education to a summit at the American Council on Education offices. “It’s American pie, you know, national service,” he said dismissively, “doing something for the country, shades of JFK, the whole bit. Wonderful images of Americana et cetera.” But the ultimate goal of national service, he warned, was to replace Pell grants, which aid 4.4 million low-income students, in order to give a nice experience to 100,000 middle-class kids.

A practicing Baptist minister, Gray pounded the table, warning that when members of Congress have to decide between a middle-class program like national service or one for the poor like Pell grants, “I can tell you right away which they’re going to pick. They’re going to pick the one for the people who vote! Middle-class Americans. Middle class vote! Poor folks don’t!”

In a private meeting the next day with officials from the American Council on Education, Bud Blakey, the counsel for the United Negro College Fund, turned up the heat. “If we end up trading the interests of upper-income whites for low-income blacks and Latinos…” He didn’t finish that sentence, adding: “If the race card has to get played to stop this bull—- from happening, then the race card is going to be played here!”

By making “service” a criterion for aid, the White House had backed into the dangerous arena of racial politics. In times of scarcity, giving money to white middle-class kids-even those who’ve earned it through good works–can mean taking money away from poor kids. The White House tried to reassure colleges that it would support Pell grants but undermined its credibility by simultaneously cutting millions of dollars from other student-aid programs.

Until Summer of Service awakened them, White House negotiators were oblivious to the fact that their notions of race were deemed by some to be naive, antiquated and condescending. Clinton wants to solve racial troubles through aggressive integration–an approach admired when he was memorizing Martin Luther King’s “I Have a Dream” speech but out of touch with sentiment in the streets today. King and busing to achieve school integration are out; Malcolm X and Afrocentric curricula are in. Clinton implicitly assumes that low-income blacks will benefit more from exposure to affluent whites than from working in their own communities. And affluent whites are more likely to drop their prejudices if forced to work on an equal footing with blacks than if they watch “In the Heat of the Night” in their homogeneous suburbs. National service “is one of the things we have to do,” Clinton says, “to re-establish the ability to talk to one another.”

But some groups that work with minorities view these assumptions with contempt, Kathleen Selz represents local service corps mostly comprising low-income blacks and Hispanics and believes that race-mixing proponents overstate the magical ability of Yuppie whites to transform the lives of the underclass. “These girls from [affluent] Bethesda at the D.C. Service Corps are always saying things like, ‘Oh, it opened our horizons!”’ says Selz, mimicking the syrupy voice of an earnest suburbanite. “Well, you notice the welfare mother doesn’t say much like that.”

If money were unlimited, Clinton could give aid to programs that celebrate unifying ethnic groups and minority self-help programs that emphasize separateness. But the White House had to decide: should the legislation favor local programs that share the same vision as Clinton? Early on, as White House negotiators worked with congressional staff, they considered listing “diversity” as a criterion when giving out money; programs that sought to mix whites and blacks would be more likely to get funding than those that didn’t. But the staff of the House Education and Labor Committee feared that such a preference might sink the all-minority programs popular with black and Hispanic members of the committee. After all, if the government funds a program with 50 blacks and 50 whites, it has less money to fund the program with 100 blacks. “Every time ‘diversity’ would come up [in legislative negotiations, the committee’s staff] would say ‘Well, the House is going to have some problems with that’ and we’d say ‘OK, OK, we’ll take it out’,” one White House official said. The White House did not put up much of a fight, severely underestimating how hard it will be to produce mixed programs. They even casually agreed to set aside at least one third of the money for programs that recruit mostly “disadvantaged” youths, further reducing the pot of money that will go to truly diverse programs.

There were other ways of encouraging race- and class-mixing without requiring it–but these methods threatened to alienate key interest groups. Clinton believed that if he offered to wipe out large chunks of college-loan debt, the service program could attract white middle-class kids. In a Feb. 24 meeting, he argued that college graduates had genuinely greater skills and could therefore contribute more than a 17-year-old just out of high school. And, he told aides, the college grad would be making a sacrifice by taking two years to teach, “a real gift to society.” Seventeen-year-olds, on the other hand, have fewer skills and expenses, since many live at home. Clinton decided to offer a $10,000 benefit to college graduates and $5,000 in aid to those who serve before college or don’t intend to go to college.

But advocates for the non-college-bound hated Clinton’s idea. “The whole message is we value people who go to college more than those who don’t,” longtime low-income advocate Sam Halperin told White House officials at a private meeting sponsored by the umbrella group Youth Service America. Clinton couldn’t bear undervaluing the non-college-bound. He agreed to have one smaller benefit of $6,500, which seemed to settle the issue. What other group could possibly object? April 28, two days before they were scheduled to unveil their plan, they found out who.

Veterans. These were the men who did serve in Vietnam, who really don’t much like this gays-in-the-military idea–the last group in America with which Clinton could pick a fight just then. The veterans argued, using some slightly deceptive arithmetic, that the $6,500 benefit was more than GIs get as college aid. White House staff at first debated how hard to fight, but the debate came to an abrupt close when top adviser George Stephanopoulos entered the discussion, incredulous at the political naivete of his colleagues. He knew the veterans could sink the entire bill, shaky statistics or not. Segal’s staff cut the benefit to $5,000 faster than you can say “political viability.” Clinton lost what he considered a key tool for luring a broad range of young people into service, but at least he seemed to have cleared the remaining obstacles to swift legislative passage.

Republicans in Congress were not about to make it that easy. As the legislation journeyed through Congress, they proposed a series of changes that struck the Democratic Party’s exposed nerves. In both the Senate and the House they offered killer “trigger” amendments forbidding the government to spend a penny on national service until it had first boosted Pell grants. One by one, Republicans rose to accuse Clinton of insensitivity to the poor. “You want to help young kids, then double and triple the Pell grants. Reach out to millions!” Sen. Al D’Amato shrieked on the floor of the Senate. “This bill is a turkey; we should shoot, kill it, now!” This Republican righteousness was too much for Sen. Edward M. Kennedy, a key national service advocate. “Tonight at 8 o’clock we hear how some are absolutely indignant about what is happening to these programs. Where were they when the appropriations were coming out over the last 12 years? Where were they?”

Behind the scenes, though, Kennedy himself was furious about the administration’s other student-aid cuts. “This is crazy!” he wrote in thick marker atop a memo from a staffer. Although much of the Republican attack was cynical posturing, critics had a legitimate point: national service did pose a threat to Pell grants and need-based financial aid. If national service continues to grow, it will be very difficult to increase grant aid.

Clinton was partly to blame for the Republican attack. For all his criticism of the “politics of entitlement,” he could not resist pitching the reward–college benefits–more than the sacrifice. Casting national service as a student-aid program inevitably forced the comparison with Pell grants. And viewed as a student-aid program, national service is laughably inefficient-roughly $1,300 per person for Pell grants; $15,000 to $22,000 per person for service. Longtime supporters of national service such as Sen. Harris Wofford privately pleaded with Clinton to stress the benefits to communities of service. Sen. David Durenberger, a Republican who strongly supported Clinton’s legislation, feared that the president’s hyperbole would jeopardize the entire bill. “Everything the president has done and said is an exaggeration,” he complained as other Senate Republicans mounted a brief but aggressive filibuster in July. “The rhetoric is destroying the reality-and the Republicans took advantage of it.”

But Clinton’s political advisers such as Mandy Grunwald and pollster Stan Greenberg still believed that lofty service rhetoric wouldn’t win over middle-class voters–and Clinton sided with them. “I want my national service plan to pass; that will open the doors of college education to millions of Americans,” Clinton said in a staggeringly misleading statement on “Larry King Live” the same week the Senate was considering his legislation.

The White House was able to defeat the lethal “trigger” amendments by restoring some of the money that had been cut from student aid and promising future generosity to Pell grants. It avoided a rift the old-fashioned way–papering it over with money.

But the Republicans weren’t done. They launched another attack from the left, this time proposing to forbid rich kids from receiving national service benefits. Again, they were trying to drive a wedge through the Democratic coalition with an argument designed to appeal to liberals: shouldn’t money for national service scholarships be given according to need? The notion had some immediate appeal–particularly to members of the House Education and Labor Committee, which is, in the words of one staff member, so far to the political left it “would pass the Communist Manifesto if it had jurisdiction.” The committee’s chairman, Bill Ford of Michigan, was a Lyndon Johnson protege who had disliked national service in past years and always fought hard for targeting aid to the poor.

This time was different. Ford had decided to help Clinton out. In part, it was out of personal affection. Clinton had helped Ford win re-election narrowly by campaigning in his suburban Detroit district six times in 1992. Ford also rediscovered his own political inner child–values not from the 1960s but from the 1940s. He had gone into the navy during World War II, met people of many different backgrounds, gone to college on the GI Bill and discovered, “Christ, I’m just as smart as these rich guys. It changed my whole life.” Ford, in essence, saw Clinton’s New Democratic approach as a return to the FDR/Truman Democratic Party, the party of old World War II movies in which Joey Brooklyn learns to love Tex Hayseed because he throws himself on a grenade.

On June 16 Segal called Clinton to tell him that the House committee had voted with the president–that is, against targeting the money toward the poor. Clinton–the man attacked by Republicans as a Carter-Mondale-Dukakis liberal-clenched his fist and pumped it in the air. Next time Clinton saw Ford, the president of the United States went over to the gruff, authoritarian committee chairman…and gave him a hug. “Damn good victory,” Clinton said, lifting Ford off the floor with his embrace. “The guy is a really enthusiastic young man,” Ford says.

In the end, the White House did win a key test–allowing middle-class and rich kids to get the same benefit as the poor. They won a partial victory on the size of the scholarship; the final amount was $4,725 per year, a far cry from the $10,000 they originally sought, but probably generous enough to attract a variety of kids into the program. As a result, Clinton may get middle-class families to feel invested–literally, financially invested–in improving their communities and understanding people who are different from them. The White House also succeeded in structuring a highly flexible program that can subsidize existing charities like the Red Cross or Habitat for Humanity; urban and environmental corps; professional corps like Teach for America, which sends recent college graduates to teach in disadvantaged communities; and even “service learning” efforts that incorporate service into high-school curricula. By August, the Summer of Service had illustrated the tremendous potential of the approach: volunteers in Atlanta set up an after-school program for 250 poor kids; 87 volunteers in south Texas went door to door and brought 100,000 school kids in for immunizations.

But the White House lost, without even fighting, on the critical issue of whether to favor local programs that mix races. As Summer of Service showed, racial and economic diversity won’t happen unless organizers make it a prominent goal. The administration passed the legislation swiftly, but merely postponed the day when Clinton will have to decide: does he want racial progress to be central to his national service program, and is he willing to take the heat from those who disagree?

For all his inspiring rhetoric, John F. Kennedy attracted to his Peace Corps a narrow group of mostly white, well-educated Americans. Clinton’s plan is far more ambitious, seeking to regenerate fragmented American communities and break down rock-hard barriers of the heart. Because Clinton must confront the emotional issues of race and class, he is more likely to fail. But should he succeed, Clinton will have accomplished something far more significant than his hero ever did.