A study examined children's reading difficulties at the early grade levels and explored how federal and state governments are responding to this critical education problem. Sections of the study address: background issues in reading achievement; federal response to improve poor reading achievement; state issues in early reading achievement; effective intervention programs; and trends in reading assessment. Results indicate that five factors contribute to children's reading difficulties: (1) lack of phoneme awareness; (2) difficulty with reading comprehension; (3) lack of motivation to learn to read; (4) inadequate preparation of teachers; and (5) lack of standards and accountability. Findings suggest that there continues to be a gap between instructional theory and practice, and that as schools implement a balanced approach to reading instruction, adjusted curriculum, textbooks, and assessment models will be needed. Contains 28 references, and a figure and a table of data. (EF)