Indiana also gets Joe Kleine, Portland's 38-year-old backup center. Kleine was signed to a three-year contract, with the first year guaranteed.
With Davis, the Blazers clearly got the best of the swap of 6-foot-11 players.
Davis, who helped lead the Pacers to the NBA finals against the Lakers, averaged 10 points and 9.9 rebounds, leading Indiana in rebounding for the seventh consecutive year and making his first All-Star team.
O'Neal, who came into the NBA out of Eau Claire (S.C.) high school, has contributed virtually nothing in his four pro seasons. He averaged only 12.3 minutes, 3.9 points and 3.3 rebounds last season and couldn't crack the rotation playing behind forwards Rasheed Wallace and Brian Grant.
"I just don't think he was as talented as the guys who were playing in front of him," Blazer Coach Mike Dunleavy said.
When O'Neal did get into games, usually as a backup to aging center Arvydas Sabonis, he showed promising shot-blocking and rebounding skills at the defensive end, but almost no touch on offense.
"He has rebounding, shot-blocking ability. We feel he can play any one of the three front line positions, including center. He's got athletic ability and great skill," Pacer President Donnie Walsh said. "This continues our idea of trying to keep this team in a position to be good both immediately and in the future."
Portland has been scheming to stop Shaquille O'Neal since they blew a 15-point lead to the Lakers to lose Game 7 of the Western Conference finals. Adding Kemp and Davis gives the Blazers a fighting chance to at least slow him down and disrupt the Laker chances to repeat as champions.
Saying he feels great a year after a kidney transplant and wants the challenge of basketball in his life, Sean Elliott announced that he will return to the San Antonio Spurs for at least one more season.
The 32-year-old forward, who made an unprecedented comeback by rejoining his team last March, said he's just not ready to retire.
Riley declined to lash out at Hardaway, a free agent who this week threatened to sign elsewhere after complaining the Heat has shown him a lack of respect in contract talks.
"Our priority right now is to come to terms with Tim," Riley said. "I don't want to make any comments about his comments. It just fuels the fire."