RATIONALE: Drugs used in chemotherapy use different ways to stop cancer cells from dividing so they stop growing or die. Combining more than one drug may kill more cancer cells.

PURPOSE: Phase II trial to study the effectiveness of combination chemotherapy in treating patients with acute myeloid leukemia or myelodysplastic syndrome in first relapse or who did not achieve first remission.

OBJECTIVES: I. Determine the toxicity, remission rate, event-free survival, and overall survival following induction with cytarabine/mitoxantrone (ARA-C/DHAD), intensification with ARA-C and etoposide (VP-16), and consolidation with cladribine (2-CdA) and VP-16 in patients with acute myeloid leukemia (AML) that is secondary, in first relapse, or has failed initial remission induction therapy. II. Compare the remission induction rate and event-free survival on this trial with prior second-line studies (i.e., protocols CCG-243, CCG-201, and CCG-261P). III. Compare survival of patients on this trial with the survival of patients relapsing or failing to achieve an initial complete remission (CR) on previous front-line AML trials (i.e., protocols CCG-251, CCG-213, CCG-2861, and CCG-2891). IV. Determine the frequency and prognostic significance of mdr1 gene expression and p53, topoisomerase II, and deoxycytidine kinase gene mutations in these patients. V. Determine the disease-free and overall survival of patients achieving a CR on this study in relation to the post-intensification therapy received (i.e., bone marrow transplantation, chemotherapy, or no further therapy). VI. Determine the frequency and degree of abnormal cardiac function on echocardiogram or MUGA at 1 and 5 years in patients treated with mitoxantrone following anthracycline therapy during initial treatment. VII. Provide a control arm evaluating the safety of using phase I or II agents in an "upfront window" approach planned for future CCG studies. VIII. Determine the toxicity, remission rate, event-free survival, and overall survival in patients who fail to achieve a CR with ARA-C/DHAD induction and are then treated with 2-CdA/VP-16. IX. Determine the biologic characteristics, toxicity, remission rate, event-free survival, and overall survival following this treatment regimen in patients who develop AML as a second malignancy.

OUTLINE: Patients who do not achieve M1/M2a marrow following Induction proceed to Salvage Induction; all others proceed to Intensification. Patients receive Consolidation therapy on Regimen A, B, or C according to the investigator's choice. The following acronyms are used: ARA-C Cytarabine, NSC-63878 2-CdA Cladribine (2-Chlorodeoxyadenosine), NSC-105014 DHAD Mitoxantrone, NSC-301739 G-CSF Filgrastim, NSC-614629 HC Hydrocortisone, NSC-10483 HD High Dose MTX Methotrexate, NSC-740 PBSC Peripheral Blood Stem Cells TBI Total-Body Irradiation TIT Triple Intrathecal Therapy (IT ARA-C/IT HC/IT MTX) VP-16 Etoposide, NSC-141540 INDUCTION: 2-Drug Combination Chemotherapy plus CNS Prophylaxis/Therapy. ARA-C/DHAD; G-CSF; plus IT ARA-C and, if CNS disease at entry, TIT. SALVAGE INDUCTION: 2-Drug Combination Chemotherapy. 2-CdA/VP-16. INTENSIFICATION: 2-Drug Combination Chemotherapy followed, as indicated, by Radiotherapy. HD ARA-C/VP-16; followed, in patients with persistent CNS disease, CNS relapse, or chloromas, by irradiation using megavoltage equipment (minimum Co60 and maximum 6 MV x-rays or electrons). CONSOLIDATION: Regimen A: 2-Drug Combination Chemotherapy. 2-CdA/VP-16. Regimen B: Myeloablative Chemoradiotherapy followed by Hematopoietic Rescue. TBI (equipment unspecified) with electron boosts to the testes, chest, extramedullary sites, and, if indicated, craniospinal region; VP-16; followed by allogeneic or autologous bone marrow or PBSC. Regimen C: No further therapy.

PROJECTED ACCRUAL: A total of 90 patients will be entered. The study may be closed if there are 7 or more deaths in the first 45 patients who complete Intensification.

DISEASE CHARACTERISTICS: Acute myeloid leukemia (AML) or myelodysplastic syndrome in one of the following categories: In first relapse Failed to achieve initial complete remission Newly diagnosed secondary AML eligible Required bone marrow status: Greater than 25% blasts (M3) OR Persistent abnormal clone on cytogenetics and 5-25% blasts (M2) No Fanconi's anemia

PATIENT CHARACTERISTICS: Age: Under 22 Performance status: Not specified Hematopoietic: See Disease Characteristics Hepatic: Bilirubin no greater than 1.5 times normal AST or ALT less than 4.0 times normal Renal: Creatinine no greater than 1.5 times normal OR Creatinine clearance or GFR greater than 70 mL/min per 1.73 square meters or GFR in equivalent institutional normal range Cardiovascular: Shortening fraction greater than 27% by echocardiogram or in institutional normal range OR Ejection fraction greater than 47% by radionuclide angiogram

PRIOR CONCURRENT THERAPY: No more than 1 prior treatment No prior salvage therapy No prior mitoxantrone