A gauge and diffeomorphism invariant theory in (2+1)-dimensions is presented in both first and second order Lagrangian form as well as in a Hamiltonian form. For gauge group SO(1, 2), the theory is shown to describe ordinary Einstein gravity with a cosmological constant. With gauge group G = SO(1, 2) ⊗ G , it is shown that the equations of motion for the G fields are the Yang-Mills equations. I...