Actually, what you want are trolleys. Cable cars are not electrically powered--they are pulled through the street by a cable that operates on a series of pulleys that runs below the street. The cable car grips onto the moving cable and is pulled around. The only place where cable cars still run is in San Francisco, CA, but they used to be relatively common before the advent of electric trolleys.
As to trolleys--the "trolley" being the little wheel at the end of the "trolley pole" that trolls along behind the car (originally this was a multi-wheeled doohickey on a cable, replaced fairly early on by a solid pole)--trolley modeling used to be more common, but it seems to be experiencing a resurgence of interest as more cities turn to Light Rail Vehicles (fancy-sounding term for "trolleys") to relieve congested traffic and revitalize inner cities.
Bachmann is a good low-cost option: they make a nice Brill trolley (more old-fashioned looking) and a PCC car (more streamlined-looking.) Bowser makes a couple of white-metal trolley kits that are nice and relatively inexpensive, too.
All you *really* need is a loop of track running through your city's streets, and the trolley models to run on it. The Bachmann kits have flexible plastic trolley poles that don't actually track wire, so you wouldn't HAVE to actually hang trolley wire (but at least having poles along the right-of-way, suggesting the presence of trolley wire, would be a nice touch.)
When making up your trolley loop, throw out everything you know about minimum radius. If you remove the bit of Lucite inside the Bachmann trolleys that carries light from the single bulb inside to the headlights, they'll track an 8" radius curve with no problem--and 8" is actually comparatively broad for street trolley trackage.
I'd recommend getting some big sheets of .020" sheet styrene from an industrial plastic supplier for your street surfaces, as well as some 1/8" foamcore board. Use the foamcore to build up "streets" alongside the trolley tracks, and some scale lumber (1/16" or so) between the tracks. Then cut the styrene to snugly fit against the outside of the rails and glue it down to the foamcore. The process of cutting and shaping plastic to fit in between the rails is kind of laborious but simple--an X-Acto knife and some sandpaper or hobby files should be all you need, and plenty of time for cutting and fitting--then glue it to the scale lumber and paint it all a nice streety color.
Take a look at this thread:
http://the-gauge.com/showthread.php?t=11388&highlight=trolley
for a look at a nice trolley section in a layout setting, under construction.
If you find yourself catching the trolley bug, you may find yourself getting into things like powered overhead, Orr girder rail and single-point turnouts, and obscure brass trolley/interurban models. If so, consult Interurben, or me, or one of the other juice jacks in these here parts and we'll talk your ears off about the joys of Real Trolley Modeling.
But for now, just grab one of those Bachmann PCC's and some flextrack, lay some nice neat 8" radius curves through your city streets, and have some fun running the trolley!