The problem I was having (and unfortunately, still am having), is that I can't add a new contact from my Mac. If I add the contact on my iPhone, everything works. If I EDIT a contact on my Mac, that works. BUT...if I add a new contact from my Mac, the iPhone and iCloud never get notified. So, I'm stuck having to remember to always use iCloud or the iPhone to start the new contact, then I'm free to edit it on the Mac or elsewhere.
I tried the steps Stephen outlined and everything ended up with all of my 765 contacts, but it didn't fix the problem. When I added a new contact on my Mac, iCloud and the iPhone never got updated with that new client, so my Mac shows 766 contacts, while iCloud and the iPhone still show 765.
MobileMe use to have an icon in the toolbar that you could force an update, but I don't see any option for that with iCloud. Not sure that forcing an update would help anyway, since the Mac DOES seem to be sending updates, as any edits I do on the Mac work. It's just new contact records that never make it to iCloud.