Ideal Structure of School

It has long been an interest of mine to try to figure out what an ideal school structure would be. The basics of the problem are as follows:
1) Students (and I am talking about young students right now, ages 4 or 5 to 11 or 12) come to a school setting with different achievement levels and different learning rates.
2) Teachers typically can only do one thing at a time. They can arrange the classroom so that kids can be doing different things, but the teacher can only focus effectively on one thing at a time.
3) The ability span of the students who are one chronological age is at least as wide as the age, i.e., the ability span of 5 year olds typically ranges from that of a typical 3 year old to that of a typical 7 year old. There will also be some students who fall outside of that range.
4) Students learn best when the content is mildly challenging.
5) Most students learn best when there are peers learning similar material.

The questions: how can the students be arranged so that each child learns at a rate that is comfortable for him/her?

It is clear to me that the most prevalent structural arrangement in the United States - chronological age groupings, with yearly advancement based largely on age - is inadequate for those at the top and the bottom of the achievement/ability spans.

What are some better ideas?

I will be out of town for a week, so that is all for now.