Reaching their conclusion on Dec. 15, several council members indicated a need to balance residential and merchant concerns with the rights of the San Jose Water Company as the owners of the reservoir property.

Speaking during the meeting, Councilman Joe Pirzynski said that, although the water company had the right to develop its property, the community should have a voice in that development.

Councilwoman Diane McNutt agreed.

"This has been a very long process and good example of how democratic process works," she said. "The differing opinions of what neighbors would like to see and what the water company wanted are a whole lot closer than they originally were."

Under the council's terms, the water company must provide at least 30 days notice to residents and merchants before razing its nonoperating reservoir and facility at Reservoir Road and filling the space. The water company is also restricted to using 4,000 cubic square feet of landfill.

During the construction phase, the water company must work to minimize disruptions to the surrounding area. This includes taking a break between the demolition and landfill operations as well as using police convoys to direct construction traffic to the site.

In a second motion, the council members voted 4-1 to allow the water company to subdivide the 2.6-acre plot into four lots, enabling the water company to sell the sections individually. Councilwoman Sandy Decker argued against the motion, on the grounds that the "the land is too precious to build four homes."

"That small piece of history is very, very special," Decker said. "Four homes up there takes away the opportunity to sustain something wonderful."

Over the past two and a half years, merchants and residents have fought against the water company's right to fill and subdivide the reservoir property. While both sides agreed to bulldozing the reservoir, they disagreed over what should be done with the property after the demolition.

Residents favored plans allowing the area to return to its natural state. Before the reservoir was built in 1871, the area was a natural ravine.

However, the water company wanted to develop the land so prospective buyers could build homes in the area. The company proposed leveling the space last December with 25,000 cubic feet of landfill and subdividing the area into four lots, a proposal that sparked an outcry among community members.

Merchants in the Main Street area also contested the water company's proposal. The water company's plans called for construction traffic to run down Los Gatos Boulevard and Main Street and up College Avenue to Reservoir Road, which are already heavily congested areas.

Merchants argued that the additional traffic would drive customers away from frequenting the area.

Over the following months, the water company presented several modified plans to both the planning commission and the town council. In July, the planning commission denied the water company's application on environmental grounds.

The company appealed the decision to the council, but a November decision by the town was postponed until last week while further soil and toxicology testing was carried out.

Although residents at last week's meeting continued to speak out against the project, some were satisfied with the outcome.

"It was the best we could hope for," said Art Bonner, a Los Gatos resident who lives on Reservoir Road and spoke against the development at the meeting.

Bonner said that although he hoped for more of a "planned development," at least his area was finally upgrading some of its facilities. As part of the construction, the water company is planning to replace the area's sewer line and add additional fire maintenance capabilities.

Water company real estate adviser Eric Morley also expressed satisfaction with the result.

"We're pleased with the decision," he said. "We think the council did a good job at balancing competing interests."

McNutt, who sponsored both motions, said that despite the flexibility afforded to the subdivision process, prospective home owners will still have to meet stringent town requirements regarding development.

"We just recently approved revised hillside standards that are pretty strict," McNutt said. "I cannot in any way see that this is going to open a door to anyone doing anything unusual in the hillside. I think they are all going to be OK with the final result."