Ms McKay conceded yesterday that the heavy rail east of Wickham was "a barrier in its present form" and declared that "the status quo is no longer acceptable".

"The longer we leave the rail as it is, the worse Hunter Street will become," she said.

She had delayed Hunter Development Corporation (HDC) from selling the waterfront land between Lee Wharf and Fig Tree corner and said if Novocastrians backed her new rail terminus proposal she would make the ban permanent. The single exception would be a proposed five-star hotel at the harbour's western end, near Stewart Avenue, but this did not have to be absolute waterfront either, she said.

Ms McKay hopes the new vision will "tick the boxes" for the community, enabling the NSW government to put a funding submission to its federal counterpart, and helping the federal government feel confident to pay for a new round of civic improvement.

For federal Labor to follow up the $70 million it already allocated to the city under its Building Better Cities program in the 1980s, it needed to feel certain that a strong majority of Hunter people backed a clear and sensible plan, Ms McKay said.

She is pinning many of her hopes on a new undertaking to make light rail a part of the city's transport future and a firm undertaking, to be backed by special laws if necessary, that the rail corridor east of Wickham will remain in public hands and never be built on.

Ms McKay said she strongly believed the city's progress depended on removing the heavy rail barrier east of Wickham.

But it was not ideal to have all the new development between the rail barrier and the harbour. Shortening the rail line and building a new city terminus would avoid this.

"We will get new development in Hunter Street where we need it and we will rescue an important piece of waterfront open space for the city's future.

"We need federal money to make this happen, and we need Newcastle people to stop fighting among themselves, because while they are arguing, the government won't feel confident to invest."

Ms McKay said almost everybody in the city, including property owner and developer GPT, agreed that light rail was likely to have an important role in Newcastle's future transport system.

"It's not viable to build this yet, but when we get the law precinct, the university faculties and some extra population in the new CBD, then it will be. That's why we have to leave the rails where they are; so they'll be available to use when the time comes," she said.

Ms McKay acknowledged that city planning errors had been made at Honeysuckle, and some problems were created by the nature of funding arrangements for the HDC. The corporation relies on the proceeds from the sale of land given to it by the government.

"For a long time HDC was forced to live hand to mouth from the sale of land in Newcastle," she said.

Now the HDC had been given access to land and property in 11 local government areas, some of the remaining Honeysuckle land could be released to be used as open space to benefit Newcastle, not just be sold "to maintain the HDC's longevity".

Under the HDC's master plan, virtually all Newcastle's remaining harbourfront was set to be covered in buildings, she said.

"We can stop that happening, but only if we adopt a sensible plan that allows Honeysuckle and Hunter Street to be joined the way they ought to be," Ms McKay said.

"If we can't agree on that as a city, then we'll lose the opportunity."