This interim finding is backed by the police. They say that Freagarrach, based in Alloa and Polmont, has directly led to a reduction of 600 in the annual number of victims of crime.
The area had more referrals to children's panels for offences than any other part of Scotland.
But William Wilson, chief constable of Central Scotland Police, says there has also been a reduction in the number of young people who have "all the right qualifications for Barlinnie", despite repeated referrals to the children's panel.
The project, managed by Barnardos, is being keenly followed within the Scottish Executive, which is providing pound;1 million over a five year period to April 2000. This reflects ministerial concern over youth crime, now costing an estimated pound;713 million a year in Scotland.
Mr Wilson is urging the Scottish Executive to continue its backing beyond 2000. Thereafter the three local authorities will pick up 60 per cent of the tab and Bar-nardos the remainder.
But the chief constable fears that relying on local authority budgets could endanger the continuity of the project, particularly in keeping "the committed and experienced staff that have helped make it a success".
The Lancaster study looked at youngsters 12 months before and after they started on the project. Most young people spend around 10 months with Freagarrach - and they are overwhelmingly boys.
The study found that among the 58 who took part between May 1995 and March 1998, offending rates were cut by 45 per cent and 31 stopped offending altogether.
After one year away, only low levels of known offending were recorded. Professor David Smith, the project leader, describes these results as "encouraging".
However, 18 youngsters who were tracked for two years after leaving Freagarrach revealed a different story - four had received custodial sentences. Professor Smith says this is surprising, given the conventional wisdom that older youngsters commit fewer offences. But this does not undermine the fundamental value of the project, he adds.
Freagarrach staff work intensively with up to 20 young offenders at any one time. They talk one to one and in groups, challenging the young people to face up to the consequences of their behaviour.
The staff also encourage parental involvement and foster links with schools, colleges and training bodies.
"For many of these young people it is the first environment in which they have been with adults who can successfully care for and take an interest in them," Professor Smith says.
There are regular meetings with teachers to discuss cases, and efforts are made to keep the youngsters in some form of mainstream education. A key worker may offer a truant regular lifts to coax him into attending school, or there may be recourse to a special timetable.
Christine Neilson, principal teacher of pupil support at Alloa Academy says Freagarrach's contribution is "a godsend which provides a dimension of support we could not offer ourselves."
New hope for young offenders. ScotlandPlus pages two and three.