We performed a series of three-dimensional hydrodynamic calculations of binary coalescence using the smoothed particle hydrodynamics (SPH) method. The initial conditions are exact polytropic equilibrium configurations on the verge of dynamical instability. We consider synchronized equilbria only and concentrate on stiff equations of state, with adiabatic Gamma greater than 5/3. We assume that the polytropic constants (K identically equal to P/(rho(exp Gamma)) are the same for both components. These conditions apply well to models of neutron star binaries. Accordingly, we discuss our results in the context of the Laser Interferometer Gravitational-Wave Observatory (LIGO) project, and we calculate the emission of gravitational radiation in the quadruple approximation. The fully nonlinear development of the instability is followed using SPH until a new equilibrium configuration is reached by the system. We find that the properties of this final configuration depend sensitively on both the compressibility and mass ratio. An axisymmetric merged configuration is always produced when the adiabatic exponent Gamma approximately less than 2.3. As a consequence, the emission of gravitational radiation shuts off abruptly right after the onset of dynamical instability. In contrast, triaxial merged configurations are obtained when Gamma approximately greater than 2.3, and the system continues to emit gravitational waves after the final coalescence. Systems with mass ratios q not equal to 1 typically become dynamically unstable before the onset of mass transfer. Stable mass transfer from one neutron star to another in a close binary is therefore probably ruled out. For a mass ratio q approximately less than 0.5, however, dynamical mass transfer can temporarily retard the coalescence by causing a rapid reexpansion of the binary into a new, slightly eccentric but dynamically stable orbit. The maximum amplitude h(sub max) and peak luminosity L(sub max) of the gravitational waves emitted during the final coalescence are nearly independent of Gamma, but depend sensitively on the mass ratio q. The approximate scalings we find are h(sub max) varies as q(exp 2) and L(sub max) varies as q(exp 6) for q close to unity.