NEW YORK (AP) _ In a city where teachers were being arrested and students caught with guns and drugs in the classroom, the kids at P.S. 153 learned to read better - a lot better.

Children's editions of Shakespeare, a 20-minute book period after lunch and reading at home are part of an effort that began after pupils at the Bronx school came in 328th out of the city's 661 elementary schools in May 1987.

On Friday, there was reason for celebration. The Board of Education announced Thursday that their scores made it to No. 9 on the 1988 test.

''It's a wonderful feeling,'' said Natalie Lashley, a communication arts teacher. ''The fact that it comes at such a negative time might help us realize that the educational system can have a positive impact on children.''

Hundreds of kindergarten to fourth-grade performers held a black heritage celebration for parents and reporters at the clean, brick schoolhouse.

And the kids showed off their reading.

One child delivered Martin Luther King's ''I Have a Dream'' speech, another recited poetry by Langston Hughes, a third the words of abolitionist Frederick Douglass. They danced to African rhythms and sang ''We Shall Overcome.''

''My children took the results very matter-of-factly,'' said Janet Andres, a fourth-grade teacher. ''They're very sophisticated. They're used to doing well. They have very good egos.''

Most of the 501 children come from a cluster of middle-class high-rises called Co-Op City in the northern Bronx. The school is 64 percent black, 19 percent Hispanic, 16 percent white and 1 percent Asian.

It is near a district where a school principal and school board members were arrested last year on drug charges. At other Bronx schools, reading scores sagged as crack dealers worked the schoolyards and authorities emptied kids' pockets of knives and guns.

But P.S. 153 was the standout among New York's elementary schools. In 1988, 94.7 percent of its pupils were reading at or above their grade level, compared to 64.5 percent the previous year. The average improvement for pupils citywide was only from 62.7 percent to 63.6 percent.

The school, also known as the Helen Keller School, had always done well in math scores, but not so well in reading.

Last year, P.S. 153 went into action with:

-A new language arts program, including reading classics in children's editions. The works include Shakespeare's ''Hamlet'' and Jules Verne's ''20,000 Leagues Under the Sea.''

-Teacher trainers, who monitor classes and give individual advice.

-Parental involvement, including regular meetings to ensure that children also read at home.

-Independent pupil projects, such as participation in the National Aeronautics and Space Administration's Young Astronauts Program.

-Incorporation of reading into all subjects.

''We emphasize writing and reading across the curriculum,'' Andres said. ''Our math scores correlate with our reading scores - otherwise children have problems solving math problems because they can't read well enough to understand them. Children are doing reading all through the day.''

P.S. 153 also has a human touch.

''We have excellent parent participation,'' Andres said. ''I can't think of a time when I did not get immediate response.''

Principal Beverly Taylor said the pupils' success prompted her to launch a ''gifted education'' program this year, including computer training for every pupil in the school.

Pupils took the annual reading test in May, and only districtwide results of the 1988 test had been released before Thursday.

Ranked No. 1 was a school in Harlem that enrolls gifted fourth-graders. By contrast, another Bronx school, P.S. 46, ranked last on the list of elementary schools, with only 30 percent of its pupils able to read at their grade level.