This report examines the Chapter 1 program's impact at school and classroom levels, strategic directions for Chapter 1 reauthorization, the larger context of school poverty as it influences Chapter 1 delivery, the operation and effectiveness of Chapter 1, and new directions for improving Chapter 1 in line with national reforms. How well Chapter 1 responds to Congress's intent in 1988 and adds to the educational progress of disadvantaged students is measured against the six National Education Goals. Part 1 compares high- and low-poverty schools in terms of their students' needs, school service delivery, and school outcomes to establish the context for how Chapter 1 is affected by the degree of school poverty. Part 2 describes current program funding and targeting, student participation and performance, instructional services, schoolwide projects, staff development, family involvement and Even Start, special service arrangements for students in religious schools and migrant children, student assessment and program improvement, and assistance for improved performance. Part 3 describes new policy directions as a framework for reinventing the program. Included are: 53 exhibits; 4 appendixes which contain a list of supplementary volumes to the first report of National Assessment of Chapter 1 Program, a list of studies conducted for the National Assessment, the statute requiring a national assessment of Chapter 1 and a list of independent review panel presenters. (RLC)