We present results of a numerical calculation of lattice QCD with two degenerate flavors of dynamical quarks, identified with up and down quarks, and with a strange quark treated in the quenched approximation. The lattice action and simulation parameters are chosen with a view to carrying out an extrapolation to the continuum limit as well as chiral extrapolations. Gauge configurations are generated with a renormalization-group improved gauge action and a mean field improved clover quark action at three values of $beta$ and four sea quark masses. The sizes of lattice are chosen so that the physical spatial size is kept constant. Hadron masses, light quark masses and meson decay constants are measured at five valence quark masses. We also carry out complementary quenched simulations with the same improved actions. The quenched spectrum from this analysis agrees well in the continuum limit with the one of our earlier work using the standard action. We find the two-flavor full QCD meson masses in the continuum limit to be much closer to experimental meson masses than those from quenched QCD. We take these results as manifestations of sea quark effects in two-flavor full QCD. For baryon masses full QCD values for strange baryons are in agreement with experiment, while they differ increasingly with decreasing strange quark content, resulting in a nucleon mass higher than experiment. The pattern suggests finite size effects as a possible origin for this deviation. For light quark masses in the continuum limit we obtain values which are reduced by about 25% compared to the values in quenched QCD. We also present results for decay constants where large scaling violations obstruct a continuum extrapolation. Need for a non-perturbative estimate of renormalization factors is discussed.
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