OUTLINE: Patients receive gemtuzumab ozogamicin IV over 2 hours on days -21 (first 5 patients) or -14 (subsequent patients) and -7, and fludarabine IV over 2 hours on days -4 to -2. Patients undergo total body irradiation followed by infusion of allogeneic peripheral blood stem cells or bone marrow on day 0. Patients receive oral or IV cyclosporine 2-3 times daily on days -3 to 56 (if related donor) or 100 (if unrelated donor) and oral or IV mycophenolate mofetil twice daily on days 0 to 27 (if related donor) or 40 (if unrelated donor). Patients receive 2 doses of intrathecal methotrexate prior to transplant and an additional 4 doses after transplant. Patients with cerebral spinal fluid (CSF) positive for malignant cells instead receive intrathecal cytarabine, methotrexate and hydrocortisone prior to transplant twice weekly until CSF blasts clear. Patients with persistent or recurrent disease after transplant may receive up to 3 donor lymphocyte infusions if graft-versus-host disease is less than grade II and they have greater than 5% donor CD3 cells. Patients are followed at 6 months and then annually thereafter.