This phase II trial is studying the side effects of giving azacitidine together with gemtuzumab ozogamicin to see how well it works in treating older patients with previously untreated acute myeloid leukemia. Drugs used in chemotherapy, such as azacitidine, work in different ways to stop the growth of cancer cells, either by killing the cells or by stopping them from dividing. Azacitidine may also stop the growth of cancer cells by blocking some of the enzymes needed for cell growth. Monoclonal antibodies, such as gemtuzumab ozogamicin, can block cancer growth in different ways. Some block the ability of cancer cells to grow and spread. Others find cancer cells and help kill them or carry cancer-killing substances to them. Giving azacitidine together with gemtuzumab ozogamicin may kill more cancer cells.

PRIMARY OBJECTIVES: I. To test whether outcomes of patients of age 60 or older with previously untreated non-M3 acute myeloid leukemia treated with azacitidine plus gemtuzumab ozogamicin are sufficient to warrant phase III investigation. II. To estimate the frequency and severity of toxicities of this regimen in the good- and poor-risk groups of patients. III. To investigate in a preliminary manner the disease-free survival of patients who achieve complete remission and receive post-remission therapy on this study. IV. To investigate in a preliminary manner the cytogenetic response rates of patients treated with this regimen. V. To investigate in a preliminary manner the effects of cytogenetic abnormalities, promoter and global methylation changes, and multidrug resistance on overall survival and response to azacitidine plus gemtuzumab ozogamicin therapy. OUTLINE: Patients are stratified according to risk status (good \[60-69 years of age OR Zubrod performance status \[PS\] 0-1\] vs poor \[\>= 70 years of age AND Zubrod PS 2-3\]). REMISSION INDUCTION THERAPY: Patients receive azacitidine intravenously (IV) over 10-40 minutes or subcutaneously (SC) once daily (QD) on days 1-7 and gemtuzumab ozogamicin IV over 2 hours on day 8. Patients with residual leukemia (blast count \>= 5%) receive a second course of induction therapy beginning between days 15-29. Patients achieving complete remission (CR) or morphologic complete remission with incomplete blood count recovery (CRi) go on to receive consolidation therapy. CONSOLIDATION THERAPY: Patients receive one course of azacitidine and gemtuzumab ozogamicin as in induction therapy (with azacitidine given SC only). MAINTENANCE THERAPY: Patients receive azacitidine SC on days 1-7. Treatment repeats every 28 days for 4 courses in the absence of disease progression or unacceptable toxicity. Patients undergo bone marrow biopsies for cytogenetic studies at baseline, remission, and relapse or progression (and at completion of treatment if it does not correspond to one of these time points). Marrow and blood samples are submitted to correlatives studies and submitted to Southwest Oncology Group (SWOG) acute lymphoblastic leukemia (ALL)/chronic lymphocytic leukemia (CLL)/chronic myelogenous leukemia (CML) Repository in Seattle, WA. After completion of study therapy, patients are followed every 2 months for 2 years, every 3 months for 1 year, every 4 months for 1 year, and then every 6 months thereafter.