New York City Schools Chancellor Joseph Fernandez, appointed three years ago to turn around the nation's largest school system, lost his job over issues outside the classroom: condoms, AIDS, and tolerance of homosexuals.

After a tumultuous six-hour meeting the Board of Education voted 4 to 3 Wednesday not to renew his contract when it expires in June. "Social issues and the manner in which they've been introduced to our schools have polarized the city," said board member Carol Gresser, who voted against Fernandez.

Mr. Fernandez accepted the job in 1990, taking over a school system with 970,000 students and a budget of nearly $7 billion. At the time, the system was rife with complaints of corruption and inferior schooling.

He quickly won the right to dislodge ineffective principals. But his efforts were undermined by battles over his decision to distribute condoms in public high schools and his support of a teaching guide for grade-schoolers that preaches tolerance of homosexuals. Attorney general search

Miami prosecutor Janet Reno has emerged as the leading contender for attorney general, administration sources said yesterday. "She's by far the front-runner. It looks like she's it, but there are others still out there," said an administration official who spoke on condition of anonymity. The source said that President Clinton's decision, after losing two candidates for the office in controversy over their hiring of illegal aliens as babysitters, may be a few days away. Cuban oil exploration

Energy-starved Cuba Wednesday invited Western companies to explore for oil, the first time the communist country has opened bidding for petroleum exploration rights since Fidel Castro Ruz came to power in 1959. Until 1989 the former Soviet Union provided virtually all of Cuba's oil, but those shipments have dwindled since the collapse of communism. Mitterrand in Vietnam

France asked Vietnam to free political prisoners and visiting French President Francois Mitterrand promised Hanoi's communist government rare Western political and economic support. The French foreign minister gave Vietnam a list of 20 people believed to be under detention, sources close to Mitterrand's delegation said. Economic recovery

Sales at retail stores kept rising moderately in January, the Commerce Department said yesterday. Last month's 0.3 percent sales increase followed a revised 0.8 percent pickup in business in December a less vigorous sales rise than first estimated and was the sixth month out of the past seven in which sales increased.

In related news, the number of people filing first-time unemployment claims slipped by a modest 12,000, to 340,000, in the week ending Jan. 30, the Labor Department said yesterday. It was the second consecutive decline and the lowest number since the last week of December.

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