Each time he jabs the knife through the eye, a short geyser of ink squirts up. That''s his first cut. Then, with a flick of the blade, Joe Pennisi slices off the squid''s tentacles and tosses them in a tray. The dead eyes go in a garbage kettle on the floor.

Then Pennisi--a 62-year-old fisherman with hands so thick his gold wedding band binds his finger--slits the fuselage body, flattens it out and pulls off the guts. He flips over the flap of flesh, scrapes off the film of spotted skin and pushes it off the cutting board. A slick wafer of calamari goes in the tray with the tentacles.

He works methodically without looking up but talks nonstop about the slow death of his family''s business.

"There used to be 30 employees in here," he says. "Now there''s one. Me."

The decline of commercial fishing in Monterey is hurting Joe Pennisi, who rails against federal fishing regulations that he says are gradually bleeding fishermen.

"The frustration is they''re bankrupting people," he says.

Local frustrations are apparent out on the water, where the working boats must share the water with more and more pleasure craft. Though boaters of all kinds usually observe a peaceful coexistence, this summer there have been reports of friction.

One sailboat crew told the Weekly that they nearly got run over by a much larger fishing boat while racing in the bay. Another fishing boat reportedly parked itself in the middle of a sailboat race and would not budge. Early in August, the Coast Guard sent a cutter out to a fishing boat that was involved in an altercation with a research vessel. There was a story that a kayaker actually got run over by a fishing boat, but that could not be confirmed.

People who work and play in and around Monterey harbor are reporting a general decline in civility and a rise in tension. Call it road rage on the water.

If there is any frustration among the folks who make a living out in the bay, Joe Pennisi says it''s with a government that''s restricted local commercial fishing. An upcoming revision of federal fishing laws, as well as state measures that could establish no-harvest zones, have fishermen facing the potential for higher costs and fewer places to fish. A mandate to place observers onboard fishing boats has Pennisi particularly pissed.

"To do that is like assuming you''ve got a bunch of renegades out there, lawless members of society and you need a cop for every boat. You don''t see a construction cop. You don''t see a restaurant cop. You don''t see a mechanic''s cop, in a guy''s garage," he says, knife in hand.

Pennisi''s great-grandfather, grandfather and father were fishermen from Sicily. He bought his first fishing boat, the San Giovanni, in 1959, when he was 19. It''s moored within sight of his squid-cutting perch in the Royal Seafood Co. on the municipal wharf. Two of his sons, Joe Jr. and Mario, are in the business too. Or were.

While Joe Sr. slices squid, Joe Jr. kneels atop his boat, the Vito C., tied up nearby. He and his crew are preparing it for a trip to the East Coast, where he plans to sell it. He says he lost $40,000 this year and he''s getting out. Now he''s got a caulk gun in hand and he''s angry.

"Going out of business isn''t always a fun thing," he says. "I love this boat but I''m forced to sell it because I''ve got to feed my family."

Pennisi Jr. says that because he fishes for bottomfish such as sole, and therefore works in the deep, far from the harbor, he rarely encounters recreational boaters--except when they''re stranded and he tows them back into the harbor.

"The only thing I could tell you about it is the times I''ve helped people," Pennisi says.

Others who know about near-misses and confrontations are equally reticent, but not because they have no incidents to report. Some are just afraid of angering fishermen. One sailor did not want to talk for fear of "starting a war with the Italians."

A few weeks ago, a Department of Fish & Game research boat, the Mako, was surveying for squid and squid eggs off Del Monte Beach. One scientist on board, who asked not to be named, says the researchers were confronted by a hostile fisherman.

"This boat came up and started giving us a hard time. He was looking for squid and said we were in the way," the researcher says.

Coast Guard officers overheard the exchange on the radio and sent over a cutter, The Hawksbill. The Coast Guard boarded the fishing boat.

Master Chief Ted Fuller, the skipper of the Hawksbill, would not name the fishing boat. He says the boat captain was not fined. "I think it was a ''Hey, what are you doing here?'' kind of thing''," Fuller reports.

Fuller says this season there has been increasing tension between different user groups. As a member of the Monterey Peninsula Yacht Club, he hears fellow mariners tell stories about various run-ins. As a Coast Guard officer, he says there have been no "incidents or accidents." The boarding of the fishing boat was a first.

The problem is that while the bay is large, the usable area is limited. Squid boats, for one, work in the shallow water near the shore, where sailboats and other users also transit.

"I''m seeing a lot of folks in the same area, using the same space at the same time," Fuller says. Still, he understands that fishermen are under a lot of pressure. "They''re trying to put food on the table just like everybody else."

Daytime squid fishing may have been a factor in the Mako incident. Usually squid boats work at night, flooding the water with light that lures the mollusks to the surface. But in early August, the squid weren''t reacting to the glow, so the boats started going out during the day, when everyone else is on the water.

The fact that squid prices have dropped from $250 a ton to $200 doesn''t help. It forced squid boats to work more to make up for the loss with higher volume.

"This season is very, very poor," says Travis Tanaka, a squid biologist with Fish & Game. "It''s worse than last year. It''s very spotty."

He says some boats have been returning to the harbor empty.

"There is frustration," he says. "There were some issues with prices. Now the price is up but there''s no squid."

Tanaka says economic pressures may be contributing to heightened tension between harbor users. "Courtesy is kind of on a downward slide," he says.

One boater, again on condition of anonymity, complained recently of being nearly run over by a squid boat called the New Stella.

"He came pretty close then started yelling, ''How come you have to sail here? We''re working here''," she says.

The New Stella was reportedly within 30 feet, and the sailors could barely evade fast enough. "There was nowhere to go. We were under sail," she says.

Rich Aiello, captain of the New Stella scoffed when asked about the incident, although his father-in-law recalled the near-miss. Aiello declined to elaborate. "It''s really no problem," he insists.

Aiello says there are only one or two times a year that a recreational boat gets too close. "The biggest issue right now is not sailboats, it''s environmentalists," Aiello says. "They want to close down parts of the bay. They''re going to put us out of business."

Aiello has three kids to feed and a million-dollar boat to run. Like the Pennisi family, he''s under pressure. Recreational boaters who might get in the way are not the problem.

The big picture--the threat to local commercial fishing through bad prices and restrictive government regulations--is what has Aiello stressed and bitter. "The big picture doesn''t look good here for us," he says.