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Four decades ago, gays and lesbians began moving into the North Halsted Street area when few others would.

They poured their paychecks and their energies into rehabilitating the run-down housing, pushing out the gang members and transforming boarded-up storefronts into lively restaurants, retail stores and bars.

In the end, they created a vibrant community that now ranks as one of the city’s more desirable–a place where gays and heterosexuals seemed to forge a peaceful way of life, side by side.

But the city’s proposal to spend $3.2 million to promote a gay pride theme along North Halsted Street has fractured the harmonious relationship between homosexuals and heterosexuals.

But it has done more than that. It has splintered the solidarity of the gay and lesbian community, as homosexuals find themselves at odds over the wisdom and ramifications of the project.

Speaking out at a series of community meetings and in less formal settings in the neighborhood in recent weeks, gays and lesbians opposed the plan for the same reasons as their heterosexual counterparts. They said it would stigmatize the community, lower property values and dissuade heterosexuals from moving in. Some gay retail business owners said it would chase customers away.

“It sends a message of exclusion, and it will send property values right down the drain,” said John Harris, who moved to the neighborhood this year with his male partner. “It makes me wonder if straight people would want to move here knowing it’s been marked as the gay and lesbian area.”

Scott Reed, a gay man who has lived in the neighborhood for six years, said marking the area with gay pride flags as proposed would be more trouble than it would be worth.

“It’s a symbolism that is not necessary, because everyone knows this is a gay and lesbian area,” said Reed. “We’ve gotten along just fine without it, so I don’t see why we’d need it now.”

Those complaints from gays and lesbians pain some gay rights activists.

“You have people walking around who feel bad about being gay. They look at themselves and say, `I’m no good, how can this project that recognizes gays be good?’ ” said Rick Garcia, who lives in the North Halsted community and heads the Illinois Federation For Human Rights, a group that lobbies for gay rights.

City officials plan to meet Wednesday with the team that designed the streetscape to sift through the mountain of critiques they have received from the public. They will consider all suggestions, possibly incorporating some, then call a public hearing in a few weeks.

Meanwhile, many in the community–homosexuals and heterosexuals–say city officials should seek middle ground.

“I think we could find a compromise solution, which, quite honestly, is more in keeping with the spirit of what this neighborhood is all about,” said Jeff Norman, who has lived in Lake View for three years with his wife.

Based on community meetings so far, compromise seems a long way off.

During a highly charged public hearing this month, audience members jeered one another, shouted profanities and made obscene gestures at speakers with opposing points of view. Suddenly, those who had spent years appreciating the variety of humanity in their neighborhood seemed unable to tolerate even a differing opinion.

“I think what we are seeing is people’s hidden prejudices coming out,” said Norman, who supports a plan to recognize gay and lesbian contributions but does not support the current proposal.

“What you have is some people saying–albeit in subtext–`Yes, I support gay rights but not in my neighborhood and not in such a public manner.’ “

Those attitudes–as expressed by heterosexuals–have caused some gays to wonder whether the neighborhood is as accepting of them as they once imagined.

“We’ve been living in a fool’s paradise here in Lake View,” said Garcia. “We thought for so long that we lived in a neighborhood that was accepting and tolerant and one that worked together for the common good, and now we realize you don’t have to go too far below the surface to see deep-rooted, anti-gay sentiment.”

The North Halsted neighborhood veneer began to crack last month, when city officials unveiled the proposal to replace and widen crumbling sidewalks, replace curbs and gutters and plant 200 trees along Halsted between Grace Street and Briar Place. Few in the community object to those renovations.

But other parts of the plan–especially two 25-foot gateway structures featuring the multicolored rainbow motif that has come to symbolize gay pride–sparked the rift.

“We were getting along fine until City Hall sprung this on us,” said Bob Lill, a longtime resident of the neighborhood. “It’s divisive. It’s exclusionary. There’s an implication that this is my neighborhood not yours.”

Like most neighborhoods, the North Halsted community has had several incarnations.

Some 40 years ago, white flight turned the neighborhood into a ghost town. Young, middle-class families moved out, leaving those on fixed incomes. Gays and lesbians moved in, gobbled up the housing and created a community where they could openly express their sexual orientation.

Victoria Rodriguez, who has lived with her family on North Halsted for nearly 30 years, said a neighbor’s sexual orientation was irrelevant during those rebuilding years.

“People are people and we learned to live with each other, ignore the difference and look for what’s best for our neighborhood,” said Rodriguez, a devout Catholic who lives in a duplex next to the clothing store Flashy Trash. “We created a nice place to live.”

On several occasions, Lake View residents bonded together to oppose or support development projects. Last week, their efforts helped persuade a developer to scale back a proposal for two six-story buildings on North Halsted and to add more public parking spaces.

Some say the battle over the street beautification plan sliced open a wound that may not heal. But Jon-Henri Damski, the area’s unofficial historian who has written several books on the neighborhood, said he is confident the community will find peace.

“Whenever you see gayness taken to a higher level, with a little more publicity, you see a little nervousness on the part of gays, lesbians and heterosexuals,” said Damski, a gay columnist for Outlines.

“It’s the old, `Well, we solved that at the family picnic last year, why do we have to deal with it again?’ ” he said.

“But just like at that family picnic, I think we’ll come together, and I think the proposal will win out and no one will even remember this fight in a few years.”