When Earl Spencer proclaimed at Princess Diana's 1997 funeral that he wanted the souls of her sons to "sing openly," he probably wasn't thinking of karaoke. Yet for Prince William, on a field trip to northern England with fellow Eton students last month, Karaoke night at the Crossways Hotel bar in Thornley proved a fine chance to show off the royal pipes. While other patrons looked on, William, 17, led three chums in a zesty rendition of the Village People's "YMCA." "He wasn't the best singer of the night," allows owner John Hudson, 53, "but there was rapturous applause. Everyone thought it was wonderful that this lad who's second in line to the throne could act like one of the crowd."

Blending in, to be sure, will never be a real option for this 6'2" stunner with the Di-blue eyes--or for his mop-topped charmer of a brother, 15-year-old Prince Harry. But as the third anniversary of their mother's shocking death in a Paris car crash approaches this August, the "lovely boys," as Harry's godmother Carolyn Bartholomew calls them, are coping astoundingly well--and having the sort of ordinary fun Diana so relished. Rocketing toward adulthood, the young princes are distinguishing themselves on the playing fields at Eton, enjoying downtime with their dad--even scoping out the opposite sex (does the name Britney Spears ring any bells?). More seriously, they're beginning to make independent-minded decisions and sometimes rebelling like regular teens at the restrictions of their lives. All in all, reports Gerald Ward, a friend of their father's, "they are sporty, well-adjusted, thoroughly decent kids."

It's Prince Charles, observers say, who deserves much of the credit for his sons' well-being since their devastating loss. In addition to guarding their privacy vigilantly (he limits their public appearances to just a few a year, plus some carefully calculated photo ops), Charles, now 51, spends vacations and many weekends with the boys, who bunk at Eton most of the time. Off campus they stay either at their country home, Highgrove, or at St. James's Palace, Charles's London digs. (There, William has his own top-floor suite, complete with kitchen, where his well-bred pals have been known to crash in sleeping bags.) And the formerly remote Charles has become as publicly affectionate with the princes as Diana was: At an April 7 photo shoot during their ski vacation in Klosters, Switzerland, the threesome laughed and embraced, Charles joking, "My arms aren't long enough!"

Whatever their father is doing, it's working. Consider William, who got his driver's license last year and turns 18 (is it possible?) on June 21. In his final Eton year, the wildly popular teen serves as keeper of the swim team (that's captain in American), has nabbed the school cadet corps' top honors and competes in soccer and polo. A top-notch student, William has begun prepping for final exams, called A-levels, in his chosen subjects: history of art, geography and biology. He is also a prefect, one of an elected elite with disciplinary duties and only-in-England duds: checked pants, bow tie and colorful waistcoat.

Even more athletic than his brother, 5'11" Harry--who captains Eton's under-15 rugby team--"is only an average pupil," says Brian Hoey, author of 14 books on the royal family, "but he's perfectly happy." And one of the guys: Harry recently nixed special treatment by opting to be confirmed into the Church of England on March 19 at Eton, not Windsor Castle, the usual royal venue. "He wanted to be with the other boys from Manor House [his and William's dorm]," says a pal. The brothers, who share meals with their 28 housemates, "have got much closer" since Harry joined William at Eton in 1998, says a family friend. "William looks after Harry."

Still, some fraternal friction is inevitable. "I know from a policeman who taught them to shoot that it came more naturally to Harry, and William wasn't happy," says a source close to the palace. By all accounts, William has always been a more serious child, while Harry--"like Diana, very cheeky, very naughty," as Majesty editor-in-chief Ingrid Seward describes him--loves practical jokes. During a recent school cross-country race in which William took part, Harry jumped out from behind a tree to startle his brother, who was not amused.

Not that William can't laugh at himself. When an employee at a London club commented last year on his ever-present bodyguards, the prince quipped, "I don't know what their game is, but they are constantly following me around." He can even see the funny side of being in the press. When he and Harry popped into a pizzeria in Klosters one day this month and found a camera crew editing footage of them, the boys asked to watch. "They giggled their way through it," says an observer.

A keen sense of humor must help the boys adjust to life without their beloved mother. They have visited Diana's grave at Althorp at least once, and there are photos of her in their rooms at Highgrove. "Charles has an interest in crisis counseling," says Peter Archer, royals reporter for the British Press Association, "so he would encourage the boys to talk about Diana." How much they do--they're teenage boys and this is grin-and-bear-it England, after all--is another question.

It can't help that the boys' connection with many of those in Diana's circle is dwindling. "When I try to speak to them at the palace I am told they're unavailable," says entrepreneur Roberto Devorik, a longtime Di ally. The Duchess of York, who has been barred by the palace from seeing her ex-nephews, told PEOPLE last fall, "I miss them desperately." (She finally saw them last Christmas, when William--displaying his increasing independence--corralled Harry and dropped in for an impromptu lunch at Sandringham's Wood Farm, where Fergie spends holidays.)

The Spencer clan is a relatively minor presence in the young princes' lives. Last year, Earl Spencer, 35, moved from South Africa back to his English estate, where he opens a memorial to Diana each summer. But, says Brian Hoey, "the royals raised the drawbridge" on Spencer after his Windsor-bashing eulogy. He phones his nephews but visits them only occasionally, though he attended Harry's confirmation. Diana's mother, Frances Shand Kydd, 64, a near-recluse at her home in Oban, Scotland, rarely goes to London.

Diana's sisters Lady Sarah McCorquodale, 45, and Lady Jane Fellowes, 43, have stayed in touch. William and Harry ushered in the 21st century at a country party Fellowes and her husband, Robert, 58, the Queen's former private secretary, co-hosted for their daughter Laura, 19, one Spencer who passes muster at the palace. "There's no danger of her leading [her cousins] astray," says Hoey. "She's from the hunting, shooting and fishing set, the sort of person the Queen would welcome having around."

And what the Queen wants for her grandchildren, the Queen gets--especially where Will-who-will-be-king is concerned. "Every facet of his schooling and training is subject to approval of the Queen, the Duke of Edinburgh, her subcommittee and the Archbishop of Canterbury," Hoey says. Fortunately, both boys get along well with "Granny," as they call her, whom they visit for tea at Windsor Castle every few weeks--but never on a whim. ("Even Charles has to write and ask permission to see her," says Hoey.) They encounter Princess Anne and Prince Andrew at family functions, but--to the Queen's delight--Anne's sporty son Peter, 22, and bubbly daughter Zara, 18, are among their best pals. Zara and William, close confidants, corresponded during her extended Australian sojourn last year.

Her Majesty feels less sanguine about Camilla Parker Bowles, 52, Charles's companion and Diana's longtime nemesis (whom the Queen still refuses to meet). But Camilla, a near-constant presence at Highgrove, sees William and Harry often. "She has been accepted by the boys," says Archer. "She doesn't have to tiptoe around anymore." In fact Camilla and her children Tom, 25, and Laura, 21, good friends of both princes, joined Charles and his sons on a cruise of the Aegean last summer, a togetherness fest said to have been William's idea. And when William and Harry accompanied Charles at Gloucestershire's Beaufort Hunt last month, Camilla made it a cozy quartet. Observes Peter White, an activist trying to outlaw hunting in Britain: "It was close and palsy."

Which brings us to the question that's keeping millions of females up at night: Have Their Royal Sighnesses started dating? The answer (down, girls!) is...yes and no. Harry, who Charles is said to feel will be the real heartbreaker of his sons, reportedly received more Valentine cards at Eton than his big brother did this year. But, says Seward, "Harry's at the age where boys just like laughing about girls."

By contrast, William--voted Britain's most eligible single last year in Tatler magazine (which called him a "future king who...enjoys boating and the odd party or two")--"is aware of his sex appeal," says a pal's father. "He's very cool and out to pull girls."

Indeed, Di's oldest is said to have had at least two brief romances, though no one's naming names. Some likely suspects: the girls he invited on his family's Aegean holiday last summer (dubbed the Love Boat cruise by a British tab), including Davina Duckworth-Chad, 21, a distant cousin known as the Deb of the Web after she posed for Country Life magazine's internet site last year, and fun-loving socialites Emilia d'Erlanger, 18, and Mary Forestier-Walker, 16. Says a royal watcher: "They're all very, very upper-class."

Well, almost all. On a ski trip to Switzerland with pals in January, William danced and chatted with barmaid Lydia Truglio, 19, whom he met when she served his group one night. ("I'll have gorgeous memories," sighs Truglio.) And although the palace denies it, pop princess Britney Spears says she and William have struck up a cyber-friendship. "Someone called me and was like, 'Oh, the prince is such a big fan of yours," Spears told PEOPLE. "We started [e-mailing] back and forth. He's very, very cute." Insists Peter Archer: "William will say she's good-looking, but it's no more than that. He doesn't like her music--I think he gave the CDs she sent to Harry."

Harry probably listens to them at home, where he sometimes hangs out with former minder Tiggy Pettifer (nee Legge-Bourke), 35, with whom the boys are still close; she married Charles Pettifer, a former army officer, last fall and is no longer in the palace's employ. Meanwhile, Harry's big brother is more likely to hit the London clubs with older pals such as financial sales rep Edward van Cutsem, 26--whether Charles likes it or not. Like any 17-year-old, William sometimes squabbles with dad about what he's doing and with whom. Under hot debate at the moment: whether William, once his exams are done, will celebrate turning 18 at home or in a London nightclub. (He may be too busy cramming to attend a joint birthday bash for him and several relatives at Windsor Castle in June.)

Last year royal concern cranked up a notch when Will's pals Tom Parker Bowles and Tara Palmer-Tomkinson, among others, admitted to having used drugs. Not that either prince is likely to go that route. (For one thing, they're always accompanied by bodyguards.) "William has had the lectures," says a source close to the family. "He has been told, 'Don't let the side down.'"

There's the future to think of, after all. Once he graduates from Eton in July, William may spend a year in Australia or join the Welsh Guards before college, say royal watchers. "He doesn't want to say anything yet," declares a palace spokesman, although sources report that the University of Edinburgh is high on his list. As for Harry, he will probably join the military. "He loves all that," Seward says.

Then, for both of Diana's boys, comes the hard part: forging meaningful adult identities in a world where royalty is becoming ever less relevant. Although the Queen has no intention of abdicating and bypassing Charles in favor of William, as some speculated after Diana's death, she does pin high hopes on her grandson. "She has been known to say that it's William who will take the monarchy into the 21st century," says a royal insider. "William and Harry together, actually, because he needs the support of his brother."

As the princes laughed and chatted on the slopes of Klosters earlier this month, that support seemed as indisputable as William's reply when a reporter asked, "What do you think about turning 18?" Flashing a smile, the future king said, "It will be interesting." It will, indeed. For him, and for a world watching in fascination as these boys grow into men Diana will never know.