We present a high statistics study of the light hadron spectrum and quark masses in QCD with two flavors of dynamical quarks. Numerical simulations are carried out using the plaquette gauge action and the O(a)-improved Wilson quark action at beta=5.2, where the lattice spacing is found to be a=0.0887(11)fm from rho meson mass, on a 20^3times 48 lattice. At each of five sea quark masses corresponding to m_{PS}/m_{V} simeq 0.8-0.6, we generate 12000 trajectories using the symmetrically preconditioned Hybrid Monte Carlo algorithm. Finite spatial volume effects are investigated employing 12^3 times 48, 16^3 times 48 lattices. We also perform a set of simulations in quenched QCD with the same lattice actions at a similar lattice spacing to those for the full QCD runs. In the meson sector we find clear evidence of sea quark effects. The J parameter increases for lighter sea quark masses, and the full QCD meson masses are systematically closer to experiment than in quenched QCD. Careful finite-size studies are made to ascertain that these are not due to finite-size effects. Evidence of sea quark effects is less clear in the baryon sector due to larger finite-size effects. We also calculate light quark masses and find m_{ud}^{MS}(2GeV) =3.223(+0.046/-0.069)MeV and m_s^{MS}(2GeV)=84.5(+12.0/-1.7)MeV which are about 20% smaller than in quenched QCD.
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