To get to the kahwaji family’s antiques shop in Old Damascus, start at the main corridor of Souk Al Hammadiya, one of the Arab world’s oldest markets. Head north along its cobblestone thoroughfares past shops and stalls filled with textiles, rugs, soaps, jewelry, clothes and a galaxy of spices. The souk’s arched, corrugated-steel roof is perforated by time and the elements, so on a clear day its warrens and byways are riddled with slender beams of light. At the northernmost exit is the Umayyad Mosque, one of the holiest sites of Islam and a gem of eighth-century architecture. To the right, up a flight of stairs (beware the low ceiling), is the Old Bazaar for Damascus Crafts. The shop offers a vast assortment of items, from wedding chests to brass pepper grinders. Its 29-year-old manager, Samer Kahwaji, is an ambassador of sorts for Syria’s glorious past as well as an advocate for greater freedoms today. “When that mosque was built,” Kahwaji told me, “Syria was bigger in every way. As a nation, as a regional power, as a market.”

From the shop’s veranda you can sip tea and take in the mosque’s abundant dome, delicate minarets and crenelated walls. It was built by the Umayyad caliph Khaled Ibn al-Walid in a.d. 715, a half-century after an army of Arab Muslims swept north from the Arabian peninsula to conquer the then Byzantine- controlled Levant, the lands bordering the eastern Mediterranean. From Damascus, the conquering Arabs would establish the largest empire the world had yet known. The mosque was built on the site of a Roman temple, which later became a church, and it still houses the tomb of St. John the Baptist. It’s also a monument to a nostalgic yearning among Syrians for the age of Bilad al-Cham, or Blessed Lands, when Syria included in its dominion what we know today as Lebanon, parts of western Iraq, Jordan, the Palestinian territories and Israel. The contrast between the “Greater” Syria of old and its modern equivalent, a stately ruin inhabited by a proud and capable people under an enigmatic dictator, could hardly be more profound.

Syria is well into a fateful period in its modern history. The economy is stagnating even as the population (now at 18.4 million) is expanding rapidly. Petroleum, long the leading resource, is being depleted at such a rate that Syria will be a net importer of oil in only a few years. And when oil income dwindles, so, too, may the government subsidies—for items and services such as flour, cooking oil and transportation—with which the regime has curried public favor. “What happens when their main source of subsidies goes?” a World Bank official says. “Economically, this is Eastern Europe just before the Wall fell.”

Then there is the confrontation with the United States, which has long criticized Syria’s repressive regime and maintained that it supports terrorism, partly because of ties to militant Islamic groups like Hezbollah; from the 1970s until May 2000, Hezbollah waged a vicious and ultimately successful guerrilla war against the Israeli occupation of Lebanon, and Damascus and the Jewish state remain locked in a dispute over territories around the borders of Israel, Lebanon and Syria. After the U.S.-led invasion of Iraq, which Syria opposed, it was widely speculated that Syria would be next on President Bush’s list for regime change, though Syria has reportedly aided the United States’ pursuit of Al Qaeda suspects. And after the assassination in February of Lebanon’s ex-prime minister Rafik Hariri, the United States recalled its ambassador to Syria in protest. (Damascus is believed to have ordered the killing—except among Syrians, who tend to suspect Israel, the United States, or both.) In May, Bush renewed economic sanctions against Syria.

For his part, President Bashar al-Assad has shown no inclination to accommodate the Bush administration, thanks partly to Hezbollah’s popularity in the Arab world as a strategic counterweight to Israel. Still, the Assad government is thought to have been weakened by its April withdrawal of troops and security forces from Lebanon, and Syrian officials were expected to unveil plans for political and economic reforms at a ruling party congress in June. Meanwhile, Damascus blames Washington for abandoning what little cooperation the two sides had with each other. Syria’s ambassador to the United States, Imad Moustapha, told me in May that “for one reason or another, there is no longer engagement between us and the Americans.”

It is an authentic Oriental scene, this view from the veranda of Kahwaji’s shop, though updated by his Nokia cellphone/ personal organizer, which he pokes relentlessly with a stylus as he talks. Flanked by antique lanterns and tribal rugs hanging from the walls, Kahwaji says the future looks promising. He tells me that President Assad, an ophthalmologist by training, is popular in Syria and that the country is stable despite the seismic events in the region. “Syria is a different country than before,” he says. “It’s time to start talking.” Just talking openly—and to a journalist—is a measure of dramatic change in a country with a history of oppression and severe human rights abuses. (There undoubtedly remain large segments of the population fearful of speaking freely.)

When I first met Kahwaji, in 1999, early into a three-year assignment as the Wall Street Journal’s Middle East correspondent, he was extraordinarily candid about Syria’s condition. “We hate it here,” he said. He then ran through the grievances that Syrian merchants commonly express, from excessively high import taxes to the layers of state officials angling for bribes. But he would not then speak on the record. Today Kahwaji hopes to expand his father’s trading firm, and unlike many young Syrians with his education and skills—he has a master’s degree in business and speaks French and Italian in addition to Arabic and English—he has no intention of fleeing the country. “This is my home,” he says. “My father built this business from nothing. How can I leave?”

Just in the past year or so, Syria has undergone some liberalization. Dissidents are increasingly vocal, and independent media outlets have proliferated. The Syrian banking sector, which was nationalized beginning in the late 1950s, has been restructured, and private banks have been doing business for more than a year. Syrians are now allowed to hold foreign currency, a move the government hopes will gradually drain the huge black-market economy. The country’s tourist sector is beginning to evolve, as investors—both domestic and foreign—convert ancient villas in the old quarters of Damascus and Aleppo into fancy hotels. The newer districts of Damascus are beginning to resemble Beirut for their swank cafés and boutiques.

In a country rich in paradox, Syrians will condemn their government and praise its leader in the same breath. In fact, the most charitable assessment of the 39-year-old Bashar al- Assad is that he is the Syrian everyman’s fellow inmate. Despite recent reforms, Syria today remains a garrisoned state. Assad has released several hundred political prisoners, but human rights organizations estimate that thousands more remain in Syrian jails, and there have been many reports of systematic torture. Bashar inherited the presidency five years ago following the death of his father, the autocratic, ex-fighter pilot Hafez al-Assad—an odd transition in a country that presumes itself a republic—and he has kept intact a state-security arm that can strike without notice. A hideously corrupt oligarchy controls an economy whose excesses are driving a wedge between a minority of haves and a ballooning majority of have-nots. Muslim fundamentalism, if not Islamic militancy, is on the rise in part because of the government’s inability to provide competent, secular leadership. The only way Syrians can reconcile a positive image of Assad with the reality of the state’s myriad failures is to associate his plight with their own. “Bashar is constrained by the old guard,” Kahwaji says, voicing a common refrain. “He signs edicts, but they are ignored. He promotes reform and is quietly challenged. But the people are with him.”

Earlier this year Kahwaji agreed to organize Syria’s first conference for the country’s independent press—largely trade journals for doctors, lawyers, engineers and other professionals. “They don’t talk about politics, but they do talk about the need for administrative reform,” Kahwaji says, his eyes brightening. “And once you have that, you’ve got people openly criticizing government policy.”

If Syria’s present appears complex, consider the burden of its past. Syrians are custodians of, and the last believers in, Arab unity, and as such they cling to the mantle of Arab leadership. It is a pretense that dates back to the dawn of the last century, when Arab nationalist movements began to resist the region’s then-imperial overlords, the Ottoman Turks. During World War I, Arab intellectuals, politicians and tribal leaders allied with Britain and France against Turkey, Germany’s ally. When the war ended and the Ottoman Empire collapsed, the Western powers reneged on agreements to allow the Arabs to establish a single nation, presumably stretching from the southern tip of the Arabian peninsula to what is now northern Syria, and from Egypt to Iraq’s frontier with Iran. Instead, Paris and London partitioned the Levant into their own corridors of influence—a plan hatched well before the war’s end. The result was the modern Middle East. It comprised the newly created Lebanon and Syria, administered by France, and British-controlled Iraq, Transjordan and Palestine.

The redrawing of borders and the disruption of the ancient trade links that underpinned the economy dealt the region a concussive blow. The occupation by foreigners of the vibrant trading hubs of Aleppo, Damascus, Tyre, Sidon, Acre, Amman and Gaza fueled resentment and a sense of betrayal that still lingers, in Syria as much as anywhere else. It was Syrian intellectuals and activists who most vigorously promoted the idea of a transcendent Arab identity, a nation of mind and spirit, impervious to monarchists, imperialists, Zionists and radical Islamic groups. Gamal Abdel Nasser, the Egyptian leader who came closest to realizing the dream of a pan- Arab state, once called Syria “the beating heart of Arab nationalism.” The dream was extinguished generations ago. Nasser died trying to subdue fratricidal Arab strife in 1970, three years after Israel entrenched itself during the Six Day War. Only in the minds of Syrians does Arab unity linger still.

Ammar Al-Summer is a 40-something history student at DamascusUniversity, who is researching his doctoral thesis at Syria’s historical archives. His office walls are spare but for a collection of pro-Palestinian pamphlets and propaganda materials. “Within the Ottoman Empire,” Summer says of the pre-partitioned Middle East, “people were at least free to travel. But when these borders were drawn, suddenly those on the Syrian side could not go to Baghdad and those on the Iraqi side could not go to Damascus. It took us 50 years to get used to the [redrawn borders].”

I met Summer just as Syria was preparing—under stiff international pressure—to withdraw from Lebanon. The violent anti-Syrian backlash among Lebanese that followed Hariri’s assassination came as a rude jolt to Syrians, who had long regarded their neighbors as meek beneficiaries of the partition. Until the rise of Arab socialism in the mid-1950s, Damascus was a regional financial center with a sophisticated banking system, and Lebanon a sleepy coastal strip of Greater Syria. But when the Syrian government nationalized the banks, the nation’s financial expertise migrated to Lebanon’s freewheeling capital. Beirut grew into a worldclass banking center while Damascus, the soul of Arab culture and consciousness, became a state-run backwater.

The Syrian occupation of Lebanon, which began soon after civil war erupted in Beirut in 1975, was at first a peacekeeping operation. Syrian forces stayed on after the war ended in 1990, however, and Lebanon began to chafe at Damascus’ increasingly heavy-handed and corrupt authority. Syrian companies were favored in Lebanese projects, and Syrian security agents were given shares in Lebanese companies. Many politicians and dissidents who, like Hariri, dared to challenge Syrian control were cut down or forced into exile.

In response to the anti-Syrian vitriol in Lebanon that followed Hariri’s killing—visiting Syrians were spat upon and Syrian guest workers attacked—angry Syrian merchants withdrew a sizable share of their deposits in Lebanese banks. For Syrians like Summer, the Lebanese reaction was a slap in the face by ungrateful libertine provincials and a rebuke to the rich heritage of Greater Syria, which of course once included Lebanon. “The Lebanese hate us because of the corruption and brutality of the occupation,” Summer acknowledges.

“The scenes from Lebanon were distressing,” says Abdul-Salam Haykal, an entrepreneur and founder of what he describes as “an outspoken” economic monthly journal. “Most Syrians are not used to this. They perceived it, unfairly, I believe, as a personal attack.” He is relaxing at his family’s farm on the outskirts of Damascus; it is a cool afternoon in early spring, and he is enjoying a water pipe with political analyst Sami Moubayed and management consultant Basel Nasri. The three young men have just consumed a lunch of traditional Syrian fare—hummus, chicken kebab, lamb kibbe, tabbouleh and flatbread—and the conversation, carried out between curt but frequent cellphone exchanges, is as pungent as the smoke weaving up from their colorful glass hookahs.

Attempts to disarm Hezbollah could lead to another civil war, says Moubayed, who has just written a column about Hezbollah leader Hasan Nasrullah for the Asia Times.

America’s economy is in trouble because of its trade and budget deficits, Nasri declares.

The Syrian-Lebanese relationship is symbiotic, and Beirut should take care not to abuse it, asserts Haykal, who has written a treatise on Syrian banking reform.

All three reject the widely held notion that Syria’s withdrawal from Lebanon will hasten the end of the Assad regime. “If Syria does achieve Bashar’s vision [of economic reform], we will not need Lebanon as much as Lebanon needs us,” says Haykal.

The men belong to the Syrian Young Entrepreneurs Association (SYEA), which they launched after winning the endorsement of Asma al-Assad, Syria’s British-born first lady and a former JPMorgan economist. In a country without independent political parties, high-profile groups like SYEA are a relatively safe and compelling vehicle for venturing opposition to government policy and supporting reform efforts. Association members support what they believe are Assad’s ambitions to modernize the Syrian economy, so it no longer has to rely on its neighbors, particularly Lebanon, to keep it afloat. They praise the new, more liberal, banking laws, which eventually will allow for a stock exchange. But they acknowledge it will take time. Even if Syrians could be persuaded to deposit their black-market wealth into the new private banks—where it would be taxed by the state—the country lacks the basic financial resources, such as qualified lending officers, to effectively use those funds to advance economic self-reliance.

The regime’s previous experiment with political reform didn’t last long. Just over a year after he assumed office, in July 2000, the president hinted in a television interview that criticism of the government was getting out of hand. Within days, dozens of activists were arrested, and hopes for a Damascus spring were crushed.

Now the green shoots are back, nudging their way through softened terrain. Ammar Abdulhamid is founder and general coordinator of the Tharwa Project, a nongovernmental organization (NGO) that works to increase awareness of the living conditions and aspirations of religious and ethnic minorities throughout the Arab world. He is also a thorn in the Syrian government’s side, having written columns harshly critical of Assad for Beirut’s Daily Star newspaper. Abdulhamid, who is in his 30s, once compared the president to Fredo Corleone, the youngest and weakest of the brothers in Mario Puzo’s Godfather. (The Godfather films are hugely popular in Syria; I have met young Syrians who can recite Michael Corleone’s best lines with unsettling conviction.) Unlike most NGOs in Syria, Tharwa is not registered with the state and is operating extralegally. Abdulhamid has said he wants to see Syria’s blue-collar workers unionize—an activity that could result in his detention, if not arrest. “I have been under a travel ban,” he says. “They could conjure up a number of things against me. I live at their whim.” Abdulhamid studied astronomy and history in the United States, then dropped out of college to preach his own brand of Islamic fundamentalism from a mosque in Los Angeles. Disenchanted with orthodox Islam after religious leaders issued a fatwa against the British writer Salman Rushdie in 1989 for his allegedly heretical writings, Abdulhamid finished college and then returned to his native Syria. He now writes novels and poetry.

But he remains an iconoclast. “Here, I am a Westernized liberal in a place where even liberals are anti-American,” he says, referring to widespread opposition to U.S. Middle East policy, especially the invasion of Iraq. “No one will admit things are softening up thanks to pressure from the United States. People speak of the pan-Arab dream, but the reality is we are not united and we are cut off from the West.”

Abdulhamid is pessimistic. “Bashar is an autocrat by predisposition,” he says. “Reform is not something his regime takes seriously.” Then why does the president tolerate criticism from an increasingly bold set of detractors? Abdulhamid frowns. “This is an autocratic regime that just happens to be in a benign phase.” Just as political activists tread a fine line in Syria, so do moderate religious leaders in the increasingly evangelical nation. In the early 1980s, Assad’s father ruthlessly put down the Muslim Brotherhood, an international militant group advocating Islamic law, resulting in the deaths of thousands of innocent people and the devastation of parts of Hama, a city of 270,000 in central Syria. Since then, fundamentalist groups have kept a low profile, but that has not prevented them from gaining popularity. Militant and extremist groups such as Hezbollah, in Lebanon, Hamas, in the Palestinian territories, and the Muslim Brotherhood, in Egypt, have established themselves as alternatives to corrupt secular administrations. Rising fundamentalism is as much a concern to Damascus as to any regime in the region. A former U.S. ambassador to Syria told me that the Syrian government has even infiltrated its own army officer corps with intelligence agents because of fears that Islamist extremists have penetrated the military.

Like his fellow despots in the region, it seems that the younger Assad would rather compromise with Islamic fundamentalists than arrest them. Raiding a town hall or an NGO office is one thing; storming and occupying a mosque, quite another. And that makes the Grand Mufti of Aleppo, the supreme religious authority in Syria’s second-largest city, one of the country’s most influential and controversial figures. He must promote and protect state secularism, yet he must also keep his distance from Damascus, lest he be perceived as a stooge of the regime. As Syrian balancing acts go, this may be the most challenging, and few religious leaders have proved as accomplished at it as Sheik Ahmad Hassoun.

Until recently, Sheik Hassoun was thought to be on the shortlist of clerics to become the Grand Mufti of Damascus, the most senior religious figure in Syria. But when I asked him about this, he shook his head. “I am in a struggle here with fundamentalists,” he told me.

We were seated in the reception room of the sheik’s Aleppo home, a modest dwelling generously stocked with religious tomes and elaborately embellished copies of the Koran. He had injured his back a month earlier and was hobbling about on a cane. He was, as usual, dressed in spare but elegant gray vestments and a striking white turban.

I asked how the U.S.-led invasion of Iraq and its policy of spreading democracy in the Arab world had affected Syria. “The United States will lose not only Iraq but the Islamic world with its current policy,” he said. “This is because its government is standing with [Israeli prime minister Ariel] Sharon. Take Hezbollah. The Americans and Israel call this an extremist organization, but I know Hasan Nasrullah [the head of Hezbollah]. He is not an extremist. If anything, he is a bulkhead against extremists in his own party. Remember, when Hezbollah kicked Israel out of southern Lebanon, Nasrullah saved many churches there and prevented reprisal attacks against those who fought on the Israel side. This is extremism?”

The day after I spoke with Hassoun was Friday, the Muslim Sabbath, and the sheik delivered the sermon at Aleppo’s main mosque. His preferred tactic when dealing with orthodox calls for sharia, or Islamic law, is a frontal assault, and on this day he issued an impassioned plea for ecumenical modernity, referring frequently to Jesus Christ, a revered prophet in nearly all Islamic sects, as a model for good Muslims. “Know the real religion!” the sheik thundered to a congregation of nearly 4,000 worshipers. “Neither Mohammed nor Jesus would tolerate extremism. I ask [local fundamentalist groups] to recite pure Koranic verses and they cannot provide them. And they are preaching to you?” The show was videotaped for distribution on Arab satellite-news networks. In Syria as elsewhere, the culture wars have taken to the airwaves, and Sheik Hassoun had just delivered a blow for the moderate side.

Syria, a senior Western diplomat told me in Damascus, is playing poker when everyone else is playing chess. It is an apt characterization of a regime that is too insular and backward looking to realize it is waging a war abandoned long ago by its allies as well as its antagonists. With the rest of the region scrambling to keep up with change, Damascus is stuck in its slipstream, peddling the remains of the pan-Arab dream.

The war in Iraq has heightened tensions between Syria and the United States, with the Bush administration accusing Syria of not doing enough to stop Arab fighters from crossing its border to join the insurgency in Iraq. For the moment, Bashar al-Assad appears safe from direct U.S. intervention, but his own maneuvering—commitments to change that inevitably fall short of the overhaul that many say the country so desperately needs—is wearing thin. Syrians are ready for democracy and expect steps to be taken in that direction. While Assad cultivates the various power centers in his midst—security forces, the army, oligarchs, clerics—the legions of young Syrians who have indulged him with loyalty and goodwill may soon lose patience. Fundamentalists, meanwhile, are eager for a void to fill.

Basmeh Hafez, the German-educated head of the finance ministry’s banking and insurance division, wears a head scarf that nicely complements her Western garb. For 18 years she worked at the state-owned Commercial Bank of Syria, which until recently was the country’s monopoly lender and is now part of the economic reform effort. “I came here on a contractual basis,” Hafez says. “And I stayed because here I am able to start up new products, to make a difference modernizing the Syrian economy.”

Among other things, Hafez and her staff are working to establish a bank clearing center, a database for risk management, a center for processing international credit card transactions, and a surveillance and security team to counter a recent startling increase in the number of bank robberies— all on a lean budget and with precious little help from the West.

Yet Hafez, too, is optimistic about Syria’s future. Like my merchant friend Samer Kahwaji, she occupies a distinct and potentially pivotal place in Syrian society. Both are seriousminded members of a cosmopolitan elite. Unlike the Syrian exile groups vying for the attention of President Bush and urging the ouster of the Assad regime, they enjoy the credibility that comes only to those who work from within. They are active in the kind of nongovernmental organizations that can serve as the building blocks of civil society. They are, in short, the closest thing Damascus has to a new generation who could help Syria leverage its history and culture to restore the spirit, but not the geography, of Greater Syria. The only question is whether they will do it with Bashar al-Assad or without him.