Returning with this year's holiday season is Cambridge's perennial controversy over how the city should recognize the December religious holidays.

Last week, the City Council decided to allow Rabbi Shmuel Posner and the Chabad House of Greater Boston to place a menorah on city property in Harvard Square. Posner said he leads both a congregation and an organization for the promotion of Jewish religious observance in the area.

Councillor David E. Sullivan says of this decision, "we weren't endorsing, just allowing."

And Councillor Alice T. Wolf says she thinks the placement of the menorah is "okay, as long as it is made clear that it was by a private group."

Until 1983, the city paid municipal employees to set up a privately owned nativity scene on the Cambridge Common--amid increasing controversy.

But that year, Sullivan says he asked for an opinion about it from the City Solicitor, who responded that the sponsoring of a religious scene on city property was "unconstitutional." From then on, the city no longer sponsored a nativity scene in the common.

In 1986, Sullivan says he was instrumental in the passage of a city ordinance that declared "a portion of the Cambridge Common to be a public forum for anyone who would like to display [holiday scenes]." He proposed the measure as a compromise after Councillor Thomas W. Danehy called on the Council to sponsor the Christian display.

After that ordinance passed, private sources paid to set up the scene depicting the birth of Jesus, which consisted of a wooden shelter and several figures.

That year, Danehy angrily announced that he would spend his own money if necessary to set up the scene, presented the cash to then-Mayor Walter J. Sullivan Jr. and left the room.

An unknown arsonist destroyed the figures last winter, and no organization has replaced them so far. Asked whether any group would set up a nativity scene this winter, Danehy said last night, "we're going to make sure there is."

Wolf says she supported last year's resolution.

If a religious display is "city-sanctioned," Wolf says, "then the city is establishing a religion," which would violate a portion of the First Amendment.

"The reason I feel strongly," she adds, is, "if the city can establish a religion, then it can disestablish a religion by inference." Wolf says she has this "strong feeling" as a "card-carrying member of the ACLU" (American Civil Liberties Union).

A legal intern for the Civil Liberties Union of Massachusetts (CLUM) said "there are not a whole lot of laws" regulating religious scenes placed on city property. But she added that it is "best" if such a scene is built with private rather than public money, and if it does not interfere with public access.

The chief legal precedent governing religious displays on public property comes from a 1984 Supreme Court case, Lynch v. Donnelly, which ruled that the city of Pawtucket, R.I. could retain a holiday display containing Christmas symbols because it included sufficient room for secular expression.