RATIONALE: Drugs used in chemotherapy use different ways to stop cancer cells from dividing so they stop growing or die. Peripheral stem cell transplantation may allow doctors to give higher doses of chemotherapy drugs and kill more cancer cells.

PURPOSE: Phase I trial to study the effectiveness of combination chemotherapy followed by melphalan and peripheral stem cell transplantation in treating children who have newly diagnosed acute myeloid leukemia that has not been treated previously.

OBJECTIVES: I. Determine the feasibility and toxicity of timed sequential remission induction and consolidation in children with newly diagnosed acute myeloid leukemia. II. Determine the feasibility and toxicity of a single high dose of melphalan with peripheral blood stem cell rescue following an intense timed sequential induction and consolidation in these children.

OUTLINE: This is a multicenter study. Remission induction: Patients receive daunorubicin IV over 15 minutes on days 1-3, cytarabine IV continuously on days 1-7, oral thioguanine daily on days 1-7, and cytarabine intrathecally (IT) on day 1. Cytarabine IV over 3 hours is administered every 12 hours on days 10-12. Filgrastim (G-CSF) is administered IV or subcutaneously (SQ) beginning on day 13 and continuing until blood counts recover. On approximately day 28, patients undergo a bone marrow aspirate and biopsy to assess response. Patients who have attained an M1 or M2a status proceed to consolidation or, if a 5/5 or 6/6 HLA matched sibling donor is available, proceed to allogeneic bone marrow transplantation. Patients with greater than 25% blasts go off study. Consolidation 1: Patients receive daunorubicin IV over 15 minutes on days 1 and 2, cytarabine IV over 3 hours every 12 hours on days 1, 2, 8, and 9, and asparaginase on days 2 and 9. G-CSF IV or SQ begins on day 10 and continues until blood counts recover. Consolidation 2: Patients receive cytarabine IV over 3 hours every 12 hours on days 1, 3, and 5. G-CSF IV or SQ begins on day 6 and continues until blood counts recover. Peripheral blood stem cells (PBSC) are collected after the second course of consolidation. Consolidation 3: Treatment is repeated as in consolidation 1. Patients who remain in morphologic remission after consolidation 3 proceed with therapy. Patients receive melphalan IV over 30 minutes on day -2, then PBSC are reinfused on day 0. G-CSF IV or SQ begins on day 1 and continues until blood counts recover. Patients are followed every 6 months for 4 years and then annually thereafter.

PROJECTED ACCRUAL: A total of 20-30 patients will be accrued for this study within 8 months.

DISEASE CHARACTERISTICS: Histologically proven, previously untreated primary acute myeloid leukemia (AML) Isolated granulocytic sarcoma (myeloblastoma) allowed Patients with cytopenias and bone marrow blasts greater than 5% but less than 30% eligible only if there is karyotypic abnormality characteristic of de novo AML (t(8;21), inv16, t(9;11), etc.) OR unequivocal presence of megakaryoblasts No acute promyelocytic leukemia (M3) No Down syndrome

PATIENT CHARACTERISTICS: Age: 21 and under Performance status: Not specified Life expectancy: Not specified Hematopoietic: Not specified Hepatic: Bilirubin no greater than 3 times upper limit of normal Renal: Creatinine no greater than 1.5 mg/dL Uric acid no greater than 8.0 mg/dL Cardiovascular: Cardiac function normal by echocardiogram Pulmonary: No uncontrolled, life threatening pneumonia Other: No uncontrolled, life threatening sepsis or meningitis Not pregnant Fertile patients must use effective contraception

PRIOR CONCURRENT THERAPY: No prior therapy