Momsdream: You have my real sympathies. My younger daughter repeated kindergarten and still wasn't learning to read by the middle of first grade. It was excrucriating: She would painstakingly sound out a word like "cat," and when the same word appeared three lines later, it was as if she had never seen it before in her life. We were totally baffled, especially since reading had always come easily to everyone else in the family. In my daughter's case, she did learn to read with a one-on-one tutor who worked intensively with her on phonics, but it wasn't until we had her privately tested at the end of fourth grade that we discovered that she had an attention disorder (which, for all the talk about the overdiagnosis of ADD, sometimes goes unrecognized in girls who aren't hyperactive and don't give the teacher any trouble).
My heartfelt advice is to have your daughter thoroughly evaluated by an educational psychologist--possibly through the school, but if they don't seem to getting to the heart of the problem, a private evaluation can be invaluable. (It's expensive, but health insurance may cover some of the costs.) There was also a related thread in the Parents Forum about a 13-year-old boy who turned out to have a specific vision defect:
13 yr old Son ADD?/ what about tesitng accomodations?.
A smart evaluation can help you pinpoint your daughter's strengths as well as her weaknesses, and help you chart the most positive course for her no matter what kind of school she attends. (I found a pretty good overview of such evaluations in Dr. Mel Levine's books,
A Mind at a Time and
The Myth of Laziness.) My daughter's 15 now and doing well in all kinds of ways. But I still regret that we didn't get a handle on her particular difficulties much sooner; I feel that we could have helped and supported her better if we'd understood things more clearly.
Good luck, and please keep us posted.