NEW ORLEANS — Something once unimaginable has begun to happen here: United Parcel Service is delivering again downtown. At Langenstein's grocery, celery and pork chops are moving out the door, and revelers spill out of the Magazine Street bars on Friday nights.

But just a mile away, workers are struggling to restore some flood protection to the city, which would barely stay dry in even a modest tropical storm. Tens of thousands of homeowners, facing six-figure repair bills for their rotting houses, are unlikely to get more than a fraction of that from the government. As phones ring in empty offices, even the shrimp business can barely find customers, and the economy remains comatose.

More than two months after Hurricane Katrina incapacitated this city, New Orleans has shaken off the shock of its collapse and has slowly begun to draw breath again. But as it moves from recovery into the more crucial rebuilding phase, it is only beginning to grapple with the elemental questions that will shape its future, many of which have arisen at the special session of the Louisiana state Legislature that began Sunday night.

Will New Orleans be granted a vastly strengthened flood protection system — at a cost of up to $20 billion — or will it be told to allow low-lying residential neighborhoods to return to marshland? Will the city have to take control of thousands of houses to restore them — at a cost that no one has calculated — or will it have to tell thousands of evacuated residents not to return?

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Every major decision seems to rely on another decision that has to be made first, and no one has stepped in to announce what the city will do and break the cycle of uncertainty.

Many residents and business owners will not return and invest without an assurance of flood protection, for example. But workers who could rebuild those levees — and much of the rest of the city — are hampered by the lack of housing.

"We can't ask somebody to work for us if they have nowhere to live," said Robert Boh, president of Boh Brothers, a New Orleans construction company.

And construction of new houses, or the rebuilding of the old damaged ones, has been stymied by the high cost, the empty treasury of local government, and the debate over how to maintain the city's political and demographic base. While some experts have warned that it makes little economic or environmental sense to rebuild low-lying areas like the Lower 9th Ward, Mayor C. Ray Nagin and many other city officials have stated emphatically that the neighborhood will be rebuilt and protected, whatever the cost.

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