I was still feeling uncertain about what we'd find here in Dresden, a city struck by a devastating bombing raid in the final months of World War II. And I was having second thoughts...

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Passengers balanced boxes from Pizza Express and McDonald’s on their laps as our train left the station in Leipzig and rolled through the East German countryside past abandoned factories and concrete high-rises.

Gerd Kusserow popped open a can of beer, closed his laptop and introduced himself. He moved here from West Germany eight years ago to help reorganize the former Soviet-style school system, and he was eager to practice his English.

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“Where are you staying?” he asked.

“We’re in the Neustadt,” I told him, referring to the neighborhood where my husband and I had booked a room in what was billed as a “Mexican-style” B&B.

“Perfect choice,” he said. “I live there. I can give you a ride.”

I was still feeling uncertain about what we’d find here in Dresden, a city struck by a devastating bombing raid in the final months of World War II. And I was having second thoughts about the neighborhood we’d picked, described in one guidebook as a “former beggars’ quarter.”

The fall of communism opened up opportunities for entrepreneurs. Cafe Europa is next door to the Guest House Mezcalero, a Mexican-style B&B that opened two years ago.

Now as we threw our bags in our new friend’s van, and he drove us past monumental fountains and beautifully restored Baroque-style buildings, my doubts turned into anticipation.

Kurt Vonnegut, an American prisoner of war captured by the Germans while he was a battalion scout with the 106 Infantry Division, took shelter in an underground meat locker at the time Allied pilots fire-bombed Dresden on Feb. 13, 1945. The attack was the basis for his book “Slaughterhouse-Five,” in which he described a city “that looked like the moon” when he emerged from his cell the next day.

What surprises most visitors is that not all of Dresden was destroyed. Outside the historical center, neighborhoods filled with 19th-century country villas and Victorian row houses survived; and medieval towns such as Meissen, known for its porcelain, were left intact.

Parts of the city that were destroyed — 80 percent of the historical center known as the “old town” or Altstadt — have been rebuilt, and its architectural treasurers look deceptively ancient.

The Dresden skyline has been reconstructed to look today the way it did when this scene was painted by the Venetian-born artist Canaletto in the 18th century.

Some say that when you look at the city’s panorama from the Augustus Bridge that spans the Elbe River, you can compare the skyline with paintings done in the 1700s and see little difference.

Dresden, 120 miles south of Berlin, is the capital of Saxony and is known for its art, architecture and music, from classical to Dixieland jazz. Its museums are world-class, and when the restored Semper Opera House, Zwinger Palace and riverside promenades — the legacies of Augustus the Strong, King of Poland who ruled Saxony in the 17th and 18th centuries — are lighted at night, it’s easy to see why this city was once called the “Florence of the North.”

But while the Altstadt claims most of the historical sites, it’s the Neustadt, or “new town,” a poorer quarter on the other side of the Elbe (not really new at all, but rebuilt after a fire in 1685), that’s transforming Dresden from a city best known for its destruction into a blank canvas for new ideas.

The “Art Passage” in the Outer Neustadt connects buildings filled with boutiques, restaurants, galleries and living spaces. In the Courtyard of the Elements, light is represented in buildings covered with sheets of metal the color of the sun.

Mostly spared by the bombings, and left to deteriorate under 40 years of communist rule, the Neustadt mirrors the new East Germany.

In the Inner Neustadt, a restored neighborhood close to the river, boutiques and chic restaurants tucked into narrow lanes attract a moneyed crowd of businessmen and European tourists.

Further from the water, the scruffier Outer Neustadt draws a young, international group of travelers. Punk teens with colored hair and young professionals share the neighborhood with working-class families and elderly people who have lived here all their lives.

The concept of a Mexican-style B&B in the middle of a city with virtually no ethnic population baffled me at first. Now as Kusserow drove us along Königsbrücker Strasse, the Outer Neustadt’s workaday main drag, I was beginning to understand.

The fall of communism and the reunification of East and West Germany in 1990 spawned a new generation of young entrepreneurs eager to put Dresden on fast-forward.

Instead of graffiti-splattered Communist-bloc-style buildings, we passed Victorian row houses, some with scrubbed facades; others blackened with layers of coal dust. Grocery stores and bakeries stood alongside businesses such as the Hot Spoon juice bar and clubs such as Kathy’s Garage and Groove Station.

Marion Murer and Ralf Gaigl, owners of Guest House Mezcalero are neither Mexican nor have they been to Mexico. They are transplanted West Germans in their 30s, who with the help of a friend who is a stagecraft designer set about turning a century-old apartment complex into an Aztec-style B&B.

The result is a 23-room inn that looks as if it was transported from a movie set in Old Mexico, except that the next-door neighbors are a produce stand and a 24-hour cafe where you can sip a beer by candlelight at 9 a.m.

This Spanish tapas restaurant is located in the “Art Passage” in the Outer Neustadt.

The desk clerk showed us to a room with yellow stucco walls, a curved ceiling with exposed brick and a bed on a wooden platform. “Is it too late to find dinner?” we asked. He laughed. It was just 8 p.m. “Life here starts at around 10 p.m.,” he said, and circled a map with the names of an Indian restaurant, a Spanish tapas bar and an Italian cafe.

Bocce ball and beer

Nine o’clock on a Wednesday night and El Perro Borracho in an alleyway known as the Kunsthofpassage or “Art Passage” is teaming with young locals.

We’re seated outside in the “courtyard of fantastic creatures,” part of a complex of apartments and shops in a series of connecting passageways. The walls are decorated with animals and humans fashioned from mosaic stones.

Our waiter has a blond ponytail and is wearing a T-shirt that says “Cocaine.” Like many young Dresdeners, he has studied English and easily translates the German names for familiar Spanish dishes.

Tiny plates filled with meats, cheeses, spinach, olives and calamari arrive along with red wine and beer. The bill is $18.

As we walk back from dinner, we pass a bar decorated like a tiki hut, a group of men playing a German version of Italian bocce ball in a dirt clearing and a beer garden packed with people gathered around an open fire pit.

Dresden’s population is about a half-million. As walkable as Prague, it’s less pretentious than Berlin, and not as high-pressure as Frankfurt, Marion said, when we talked later that night in the bar at the Mezcalero. Prices haven’t yet caught up to the West, and people, as they often are in the more laid-back East, seem friendlier and less stressed.

“It’s a big city,” she said, “that feels in many ways like a small village.”

East meets West

As we spent the next several days walking the river paths or riding yellow trams that took us past castles and into elegant neighborhoods, Dresden seemed like a city that’s still feeling its way into the future.

Even after a decade of rapid change, the contrasts are sometimes jarring; other times, quirky and mysterious.

In the Courtyard of the Elements in the “Art Passage” in the Outer Neustadt, liquid is represented in a building with gutters on a water-blue facade.

With the city still recovering from last summer’s floods that closed the opera house, major museums and hotels, and getting ready to celebrate its 800th anniversary in 2006, much of the Altstadt looks like a construction site.

Have a drink on the terrace of the Dresden Hilton and you’ll be talking above the jackhammers. The hotel faces the Frauenkirche, the huge Protestant church left as a pile of rubble as a reminder of the war, now being rebuilt with plans calling for using as many of the original stones as possible.

Not far away is a building that looks like a huge mosque with a stained-glass dome. It’s the former Yenidze cigarette factory named after a town in Turkey where tobacco was produced. The “Tobacco Mosque,” as it’s called, was restored in the 1990s and reopened as an office building with a beer garden on the roof.

Most of East Germany’s industries were deemed outdated after reunification. Factories were closed, and West German companies were offered tax incentives to invest in the East.

This is how Dresden became the home of Volkswagen’s Transparent Factory, a see-through assembly plant adjoining a public park in the Altstadt, a few blocks behind the palaces and museums. VW’s first full-size luxury sedan, the Phaeton, is being built here. Cars are stacked six stories high in a glass tower, and the public is invited in for tours.

Nearby were rows of high-rise housing projects and blocky Soviet-style modern buildings, a reminder that not everyone has prospered from the new economy.

One afternoon we followed the smell of grilling sausages and found ourselves strolling back in time as we came upon a market set up near City Hall.

Miniature Bavarian-style houses were ringed by white picket fences. Picnic tables were covered with checkered cloths, and oompah music played in the background, but most of the seats were empty.

At Imbis Klinkewitz, a bratwurst stall run by Eberhard and Brunhild Klinkewitz, their daughter, Kathrin, 38, explained that while reunification has led to opportunities for some, the changes have been harder on her parents’ generation. This year, fallout from the Iraq war and high unemployment are keeping people away.

“This market is historic,” she said, recalling how it began as a Christmas market in 1434. “But as you can see, there’s no people. No one has jobs or money to spend.”

‘That’s East Germany’

In truth, Dresden is Eastern Germany’s bright spot. A center of computer technology in communist times, it’s lured some high-tech industry, and those with the skills have benefited.

“For young people, Dresden is attractive,” says Marion Murer. Perhaps this was the reason that while $2 wurst sales were down at the Imbis Klinkewitz, all the garden tables were filled at the Scheunecafé, an Indian pub and restaurant in the Outer Neustadt, when we dropped by one evening. Most everyone was under 30.

The dinner was as authentic as any I’ve had in cities with large Indian populations, and at $30, it was a bargain. But as we handed the waitress our credit card, and she shook her head “no,” and gave it back, we were reminded again that not everything has changed.

The restaurant’s owners haven’t been able to get their bankers to set up a credit-card system.

“We’ve been waiting a year to be authorized,” she said.

“Why so long?”

She smiled and shrugged. “That’s East Germany.”

Carol Pucci: 206-464-3701 or cpucci@seattletimes.com