We present a method of including galaxy formation in dissipationless N-body simulations. Galaxies that form during the evolution are identified at several epochs and replaced by single massive soft particles. This allows one to produce two-component models containing galaxies and a background dark matter distribution. We applied this technique to obtain two sets of models: one for field galaxies and one for galaxy clusters. We tested the method for the standard CDM scenario for structure formation in the universe. A direct comparison of the simulated galaxy distribution to the observed one sets the amplitude of the initial density fluctuation spectrum, and thus the present time in the simulations. The rates of formation and merging compare very well to simulations that include hydrodynamics, and are compatible with observations. We also discuss the cluster luminosity function.
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