  We report the generation of spin squeezing and entanglement in a
magnetically-sensitive atomic ensemble, and entanglement-enhanced field
measurements with this system. A maximal Raman coherence is prepared in an
ensemble of 8.5x10^5 laser-cooled Rb-87 atoms in the f=1 hyperfine ground
state, and the collective spin is squeezed by synthesized optical quantum
non-demolition measurement. This prepares a state with large spin alignment and
noise below the projection-noise level in a mixed alignment-orientation
variable. 3.2dB of noise reduction is observed and 2.0dB of squeezing by the
Wineland criterion, implying both entanglement and metrological advantage.
Enhanced sensitivity is demonstrated in field measurements using
alignment-to-orientation conversion.
