I would say that doing something with miniatures would probably be more satisfying to the students, from a tacticle and visual viewpoint. Making up some simple terrain would not be hard, and I think 1/72 scale would be easiest to find miniatures cheaply, in plastic (there are British outfits like Irregular Miniatures who do ranges of unusual figures in metal, of different scales, that would fill the bill for you but they are more expensive and would need to be painted).

I once made a demonstration-size game of my "Battle of Seattle" riot game (http://www.islandnet.com/~ltmurnau/text/gamescen.htm) with a large homemade paper map and two or three bags of "policemen" figures I got from a dollar store. They were about 54mm size, I used the figures as-was for "Authority" forces (reinforced with a few other dollar-store soldiers for National Guardsmen) and my little son and I had fun painting up and making small signs for the "Protestors". The latter needed a bit of surgery with a craft knife - cutting off pistols and holsters, changing police caps into Mohawks with Sculpey etc. - but it didn't take long.

As for rules sets, I've been looking into the Peter Pig "Rules for the Common Man" series, specifically a set called "AK-47 Republic". It's designed for playing out brushfire wars, is fairly simple and the rulebook and website has a lot of advice and hints on making scenarios and scenery. (Oh yes, and Peter Pig makes all kinds of miniatures for these conflicts too). (http://www.peterpig.co.uk/rules.htm)
(review of first edition, set was revised last year: http://www.boardgamegeek.com/thread/...ak-47-republic)

The problem with many urban games, as you and M-A pointed out above, is that you get too tactical and then you lose all the flavour of the conflict - it's just one kind of infantry facing off against another in an alley somewhere. You do need to step back a bit and AK-47 does allow for this. I'd recommend it.