IN a cozy log cabin behind Wren Hollow Elementary School, teacher Blair Spring is reading ''The Adventures of Ulysses'' to 10 third-graders clustered around a long table.
While they listen to stories most students won't encounter until high school, the third-graders work on arts-and-crafts projects stemming from lessons taught earlier in the day.
This is the ''gifted cabin'' at Wren Hollow, and Mrs. Spring is the school's ''gifted and talented'' teacher, assigned to provide enrichment for the school's brightest students. These students spend one day a week in the cabin.
Special programs such as this one in Parkway School District west of St. Louis are enabling gifted students to achieve more academically than they would in the regular classroom. Earlier research to this effect was confirmed by a study released last month on elementary programs by the National Research Center on the Gifted and Talented at the University of Connecticut in Storrs.
Yet school districts across the country are grappling with what to do about programs for top students. In times of tight budgets, administrators find it politically difficult to defend programs that serve less than 5 percent of the student population. So special instruction for the gifted is often an early victim of budget cuts.
At the same time, some reform efforts are working against the concept of special instruction. There is now a national movement against ''tracking'' by ability.
''The reform movement says we really ought not to think about gifted programs,'' says Sally Reis, a researcher at the National Research Center on the Gifted and Talented. ''We ought to think about a rich curriculum for all students.'' That sounds like a good idea, she says. ''But if it's appropriate for all kids, then it's going to be too easy for [some].''
Across the country, 26 states mandate that school districts provide gifted programs, although mandates do not guarantee state funding. The types of programs are ''tremendously variable from state to state,'' Ms. Reis says.
Support for gifted programs in public schools has fluctuated through the years as priorities shifted. Some of the first programs appeared after the Soviet Union's Sputnik launch in 1957, when it became a national priority to produce top-notch scientists. Gifted programs languished later in the 1960s era of equality, but revived again to reach their peak in the '70s. In 1993, the US Department of Education released a report announcing a ''quiet crisis'' stemming from neglect of the country's top students.
''People view gifted education as a frill,'' Spring says. ''They think children that are bright have it made already -- why should we invest more in them?''
But, she adds, the danger is that these students will lose interest in school. ''We are creating a tremendous generation of young kids who are extremely bored and don't know how to work,'' Reis says. There is also a likelihood of losing these students to more rigorous private schools, she says.
Advocates of ''gifted'' education are sensitive to the criticism that these programs are elitist and can become exclusive enclaves for wealthier white students. Many districts have moved away from using IQ tests as the only method of identifying exceptional students. Instead they rely on teacher referrals, schoolwork displayed in student portfolios, or innovative testing techniques.
Several years ago, the Charlotte-Mecklenburg, N.C., school system began using tests based on psychologist Howard Gardner's theory of ''multiple intelligences.'' Students are asked to perform in ways that may highlight ''spatial, musical, or kinesthetic'' skills, rather than simply linguistic and mathematical skills.
After the first year of experimenting with the method, the district identified an increased number of minority students as gifted. This meant, for example, that 17 percent of second-graders fell into the gifted category, compared with 10 percent using traditional IQ tests.
In Clayton, Mo., the school district has rejected the traditional approach to teaching gifted students in favor of an ''enrichment system.'' ''We don't use test scores to identify the top 5 percent and have pullout programs with special classes and a different curriculum,'' explains Marilyn Morrison, the district's coordinator for curriculum enrichment.
Instead, all elementary and middle-school students are grouped heterogeneously. ''Enrichment specialists'' focus their attention on students at both the top and bottom. Bright students receive additional work that ''extends the curriculum,'' Ms. Morrison says.
By assessing student needs on an individual basis, the district can reach more than the top 5 percent of students, Morrison says. ''We are satisfied that we're meeting the needs of our students in the best way possible.''
But some parents are less pleased with the results. ''There should be a gifted program that provides opportunities for excellence,'' says parent Martin Rochester. ''The Clayton School District attempts to meet the individual needs of all kids. But I don't think you can really do that with heterogeneous grouping.''
''I've been a passionate public-school advocate for years,'' says another father, who transferred his child to a private school in second grade. ''But I just want my kid challenged and happy. Sometimes that may require special groups. Proficient children have rights too.''