Critics argued that the measure could lead to race-based privileges in a state known for its diversity.
A procedural vote fell four short of the 60 votes needed to keep the bill on the Senate floor. With that, the legislation, promoted by Sen. Daniel Akaka, D-Hawaii, over the past seven years was effectively dead for this session of Congress.
The vote was 56-41 in favor of proceeding with the Native Hawaiian Government Reorganization Act. All 41 no votes were cast by Republicans.
Thirteen Republicans and one independent joined 42 Democrats in supporting further action on the bill.
Akaka said he was disappointed by the defeat but heartened by the support of a majority of senators.
He said, "Native Hawaiians have been recognized as an indigenous people deserving of justice, equality and the recognition according to the other indigenous peoples of the United States."
Akaka, backed by the Hawaiian congressional delegation and Hawaii's Republican governor, Linda Lingle, argued that the legislation was needed to redress wrongs that have persisted since the U.S. backed the overthrow of the Kingdom of Hawaii in 1893.
The measure would have given the 400,000 people nationwide of Native Hawaiian ancestry new say over resources and lands on the islands.
There are about 33,000 Native Hawaiians and other Pacific Islanders in the Bay Area, 2004 census figures show, and about a third of them live in Alameda County.
Sen. John Cornyn, R-Texas, said it violated both the letter and spirit of the Constitution.
"I cannot and will not support a bill whose very purpose is to divide Americans based upon race," he said.
Assistant Attorney General William Moschella, in a letter Wednesday to Majority Leader Bill Frist, R-Tenn., said the administration "strongly opposes" the bill because it would reverse the country's melting-pot tradition and "divide people by their race."
Akaka, a Native Hawaiian, said the bill would unite the Hawaiian people by providing a process to deal with "unhealed wounds" that have persisted since the overthrow of Queen Liliuokalani.
The bill could also help create more targeted services for Native Hawaiians and start the flow of federal funding to do so, said Hemi Kim, policy analyst for the Asian and Pacific Islander American Health Forum in San Francisco.
"Native Hawaiian status is critical to have that special recognition," she said.
For more than 100 years Congress has treated Native Hawaiians in a manner similar to American Indians and Native Alaskans, Akaka said.
When it comes to a policy on self-governance, he said, "Native Hawaiians have not been treated equally."
The bill recognizes the right of Native Hawaiians to form a governing entity that, upon approval by Washington, would be authorized to negotiate with the state and federal governments over such issues as historical grievances and control of natural resources, lands and assets.
While people in Hawaii are divided over the bill, it had the solid support of Hawaii's congressional delegation, all Democrats, and Gov. Lingle. She and state Attorney General Mark Bennett were in Washington this week to lobby Republican senators on the legislation.
Self-determination for Native Hawaiians gained momentum after Congress in 1993 approved an "apology resolution" acknowledging wrongdoing in the overthrow of the Hawaiian monarchy 100 years before and recognizing the inherent sovereignty of the indigenous islanders over their land.
A Senate vote was scheduled for last fall but was delayed when lawmakers became occupied by the aftermath of Hurricane Katrina.
Since then, Akaka sought to ease opposition to the measure by working out language with the Bush administration clarifying several provisions. The altered bill would have allowed the federal government to assert sovereign immunity so that land claims may not be heard in courts of law.
It also exempted the Defense Department from future negotiations over land use, and it made clear that the new government would not be allowed to take private land, deny civil rights or set up gambling operations similar to those allowed to American Indians.
The U.S. Commission on Civil Rights, in a report that came out in May, recommended against passage, saying it "would discriminate on the basis of race or national origin and further subdivide the American people into discrete subgroups."
Akaka argued that the commission ignored the changes he agreed upon with the administration.