ON an uninhabited island between New York City and New Jersey, Katharine Parsons gently lowers a snowy egret chick from its nest. As the smells of tar and rotten fish mingle, she weighs the fuzzy-headed bird and charts a grim life history: 225 grams, 175 grams, 130 grams."It's starving," says Dr. Parsons, a staff scientist at the Manomet (Mass.) Bird Observatory. A surprising array of rare birds have flourished in this unusual wildlife refuge, where pure white herons glide by sooty oil refineries and cormorants dive into busy shipping lanes. But even this resilient estuary has its limits. Scientists say its wildlife is beginning to suffer long-term effects from more than 500,000 gallons of oil spilled in surrounding waters last year. Just a few miles from the Statue of Liberty, the wetland refuge lies between Staten Island and New Jersey along two industrial waterways known as the Arthur Kill and the Kill Van Kull. In this highly urbanized region, the spills have mobilized concern over the rare patch of wetlands. A recent settlement over oil damages has generated millions to protect and restore the abused habitat. The question is whether efforts to reverse a century of pollution will come in time to save the species most devastated by last year's three oil spills. "Ugh, it's gruesome," groans Diana Yates, Parsons's assistant, as she peers into a snowy egret nest on the Prall's Island refuge in the Arthur Kill. It cradles two small white corpses. Nearby, a glossy ibis chick hangs dead from a branch. More chicks lie lifeless on the ground. Among the eight species of herons, egrets, and ibises that nest in the area, only the snowy egret and glossy ibis are having trouble. Parsons, who has studied the wading birds for five years, says the oil smothered life in the marshes where the two species feed. In the last two years, more than 80 percent of snowy egret chicks have died, with starvation rampant. Glossy ibis populations plummeted by one half this year to 140 pairs. Snowy egrets are down to 200 pairs. Even with habitat restoration, Parsons says the birds are caught in a downward spiral. "The prognosis is getting worse," says Parsons, whose T-shirt implores, "Save the Earth, Start With N.Y.C." She fears the glossy ibis and snowy egret could disappear from the area. The grim scenes on Prall's Island come after nearly two decades of recovery. Wildlife began returning to the kills in the early 1970s when sewage treatment improvements allowed more oxygen in the water. The graceful wading birds arrived a few years later. It was the first time they ever colonized the area. The 1,200 pairs of birds that now nest on three islands in the kills make up one of the largest colonies in the Northeast. Still, contamination limits the variety of species in these murky waters. No less than five sewage plants dump their effluents into the narrow Arthur Kill. Sediment pollutants include heavy metals, dioxins, and polychlorinated biphenyls (PCBs). PRALL'S Island is flanked by an oil refinery, an asphalt plant, and the largest garbage dump in the world. The 88-acre island is covered with trash blown from passing garbage barges. But pollution problems grew much worse on Jan. 1, 1990, when an underwater Exxon pipeline burst, pumping 567,000 gallons of heating oil into the Arthur Kill. It was the first and largest of several major leaks that year. Scientists are now finding that the oil's deadly effects are lasting longer than they expected. Some researchers studying the spills are challenging a belief that oil wreaks its worst destruction immediately after it washes ashore. They say the oil's effects travel indirect pathways, so that months after a spill more deadly consequences resurface. The snowy egret and glossy ibis were far away in their winter habitats when the Exxon spill blanketed the waters. It was the decimation of their food supply that hurt them most. Parsons speculates that the accumulation of toxins in the birds' bodies may be increasing mortality rates. John Brzorad, a graduate student at Rutgers University in Piscataway, N.J., says biologists were puzzled about why so many killifish, a small fish that lives in the marshes, were killed off by the spill. A clue to their fate was their unusual habit of spending the winter buried in the mud in a dormant state. "The running hypothesis is that larger fish were given the coup de grace by oil that settled in the sediments," Mr. Brzorad says. Keith Cooper, a toxicology professor at Rutgers, says birds and fish will be affected for years by oil that contaminated their food supplies. Even now, footprints in the soggy wetlands glimmer with the sheen of heating oil. Dr. Cooper says a previously abundant clam has been decimated, with only its fragile offspring remaining. Another species of clam is completely wiped out, he says. Some researchers say environmental progress has been set back decades. But Marc Matsil, Natural Resources director for the New York City Parks Department, says restoration can speed up recovery of the food chain. An ambitious project for the refuge will be funded by a $15 million settlement that Exxon agreed to pay in July for its leak into the Arthur Kill. Nearly $10 million will go toward purchasing more than 200 acres to protect existing wetlands from development, officials say. The Harbor Herons wildlife reserve will include Prall's and Shooters Islands as well as Goethal's Bridge Pond. The restoration work will include rehabilitating damaged feeding grounds by replanting marsh grass, which nurtures marine life. The Exxon spill alone denuded 16 critical acres of marsh grass. Mr. Matsil adds that public pressure has forced industries in the kills to handle toxins with more care. "There's a greater sense that they're being watched," he says. IT has been a relatively good year. Coast Guard officials report no major spills this year, with probably less than a few thousand gallons of oil leaked into the Arthur Kill and the Kill Van Kull. Exxon spokesman Doug Walt says his company has spent $20 million to improve oil transport safety in the last two years. The ruptured pipeline remains shut. There are even some encouraging signs from the muddy wetlands. Joanna Burger, director of graduate ecology at Rutgers University, says populations of killifish and fiddler crabs rebounded last summer. Dr. Burger also questions whether oil is causing the birds' troubles. She says they could be suffering from other environmental problems or natural population fluctuations. But Andrew Willner of the American Littoral Society, a shoreline conservation group, says the estuary is still in danger from more leaks. He points out that the government has an unreliable record of pursuing polluters in the kills. He would like to see consistently higher fines for environmental crimes. Even for Mr. Willner, however,there may be beauty in the contrast between smoke plumes and spring plumage. "It's an amazing place," he says. "We go out there and see loons, black skimmers, and herons, and here we are in the Seventh Circle of hell."