Where Things Stand

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Homecoming: Kurdish refugees who have returned to their homeland after being forced out during Saddam’s time now squat in a stadium in Kirkuk

Talal al-Jalili's life these days is somewhere between a dream and a nightmare. The newly appointed dean of political science at Mosul University says he "lives like a prince," taking home more than $1,000 a month, about five times what he made last year. But he has the dean's job only because his predecessor, Abdul Jabbar Mustafa, was taken at gunpoint from his house on New Year's Eve and shot twice in the head in one of a series of political assassinations in the northern Iraqi city that police have been unable to solve.

Like many other Iraqis, al-Jalili routinely veers from optimism to apprehension. He drives to work in a new government car but nervously checks for potential gunmen in any vehicle that draws alongside him. He can afford to call his uncle in Texas on his new cell phone, but when a stranger at a cigarette stand cast an odd glance at him recently, al-Jalili dialed several friends to escort him home. "The roofs of Mosul are covered with new satellite dishes, and the streets are littered with Pepsi cans and banana skins," says al-Jalili, ticking off some of the items that have become widely available since Saddam Hussein's fall. But the change in Iraq has also ushered in new fears. As al-Jalili puts it, "We don't know who is our enemy."

It has been a year since the U.S. and its allies launched the war in Iraq. They deposed and eventually captured a dictator, but the country has fallen into a prolonged state of anarchy, during which 558 U.S. troops have died along with 101 other foreign soldiers and an estimated 10,000 Iraqi civilians. Americans have mostly watched the saga unfold from afar, but for Iraqis the car bombs, shootings and roadblocks have become part of daily life, a regimen in which new opportunities coexist with the most terrifying of dangers.

TIME and ABC News teamed up last October to travel to 30 towns across Iraq to see whether life had improved for ordinary citizens. We found the initial rumblings of an economic boom and, particularly outside Baghdad, the first glimmers of political freedom. But there were also large numbers of unemployed young men and widespread concerns about security. This month we retraced our footsteps, often interviewing the same people we met on our previous journey, to gauge the extent of change. We found that the country has indeed moved forward but that this progress has been matched by a corresponding rise in anxiety. The transition in the coming months, as the U.S. hands power to Iraqis and the nation's ethnic and religious groups try to find ways to coexist peacefully, will determine whether the country can become, at one extreme, a model for democracy in the region or, at the other, an unstable haven for terrorist organizations.

For now, the economy is clearly gaining ground. The Coalition Provisional Authority, which manages Iraq's public spending, has steadily increased salaries, fueling commerce that is creating jobs and giving many Iraqis a feeling of prosperity they had never known. An expanded and more visible Iraqi police force has reduced street crime and banditry. In many cities markets and restaurants now dare to stay open until late into the night. But continued unrest threatens to swamp all those gains. A series of bomb attacks targeting Kurdish politicians, Shi'ite mosques and police stations around Iraq has stoked fears that the very foundations of the country are shaking. Many Iraqis blame the U.S. for creating this instability and for continuing to occupy the country, but few would want the troops to simply pull out now, in a climate ripe for civil war. In an informal survey of 1,350 Iraqis carried out for ABC and TIME, a majority of respondents said they think life will improve. But they also complained that the coalition has yet to deliver on its promises.

Two months before he was killed, Mustafa indicated to TIME that he counted himself among the optimists, but he said, "If there is no security, there can be no work, no rebuilding." Security is still the No. 1 concern throughout Iraq, especially as U.S. troops pull back into defensive positions in their bases. Back in October the Christian village of Alqosh in the hills north of Mosul was celebrating the dismantling of a Saddam-era military checkpoint that had prevented locals from traveling to the city to buy goods. The newly opened road had sparked a boom in business in the village. But in January the villagers set up their own checkpoint, this time to prevent strangers from coming in. "It is not like the old checkpoint," explains Salam Nissan Shamoun, the local postmaster. "This time it is our sons and cousins."

Elsewhere too, Iraqis are taking matters into their own hands. Traveling east toward the Kurdish city of Arbil, one encounters checkpoints every 10 miles or so. The peshmerga fighters who man the roadblocks address drivers in Kurdish. If the drivers are Arabs who cannot speak the local language, their cars are pulled aside and thoroughly searched. The checkpoints went up after devastating bomb attacks in February against both major Kurdish parties killed more than 100 people.

One seething potential fault line is Kirkuk, the only city in Iraq that still has a curfew. Tension persists between the Kurds on one side and Arabs and Turkomans on the other. Many Kurds say they don't want full independence but insist on a great deal of autonomy, which the new interim constitution affords them. But the rival groups coexist warily. Saddam had expelled many Kurds from Kirkuk in his attempt to Arabicize the city. Now they're coming back to try to reclaim their homes. Haider Mohammed, 20, an Arab who studies at a local technical college, says Kurds in his neighborhood are pressuring Arabs to sell their houses, sometimes for less than market price. With Kurds now dominating the city administration and police, his family is finding it difficult to resist pressure to sell. "It is just a matter of time" before they do, says Mohammed. "We just hope there will be a government to regulate this."

On the surface, life in Kirkuk seems normal, but there is a general sense of unease, and the streets empty early, long before the 11 p.m. curfew. In January a demonstration by Arabs and Turkomans against the Kurds in Kirkuk was met with gunfire from the police, and four died. "It will get worse," says Jalil Ismael, 58, a Turkoman, over a game of backgammon in his antique store in the center of the city. "They want to make this a Kurdish city."

About 40 miles south, where Kurdish territory runs into the Sunni heartland, there are growing fears of insurgent attacks. Iraqis are now in charge of trying to maintain security. The police station at Tuz Khurmatu is surrounded by concrete barriers and barbed wire, and its 20 officers have new flak jackets and Glock pistols, all courtesy of the U.S. Police chief Colonel Abbas Mohammed Amin has added six new patrol cars to the single vehicle he had in October. Four were gifts from the U.S., and two were confiscated from looters. His men's salaries have been increased from $120 a month to $200 to help keep them from quitting, particularly in light of the many recent attacks against police stations around the country.

But amid the lawlessness, there is evident progress. In the nearby Kurdish village of Tapasaus, life has changed immeasurably since electricity was delivered for the first time two months ago. The mayor invited U.S. troops to a party celebrating the advent of power, and villagers are lining up to buy televisions. (A man confides that he wants to divorce his wife because he has fallen in love with a singer on TV.) Elsewhere in the north, electrical power is still intermittent, and many Iraqis blame the Coalition Provisional Authority. It's perhaps a hopeful sign that some Iraqis view this as a business opportunity. In Baqubah businessman Sadi Nuri, 36, has set up two large generators, from which he sells power to 200 homes in his neighborhood for a minimum of $2 a month per customer.

For Iraq's brave new entrepreneurs, life is tough, but there are rewards. An influx of Iranians is helping, and property prices have doubled in Najaf as guesthouses and hotels open to accommodate the travelers. Not surprisingly, some Iraqis are suspicious of the unrestricted flow from a country that was at war with Iraq for eight years in the 1980s. They believe that Iran controls Iraq's new extremist Shi'ite parties, and there are fears that Iranian intelligence officers have infiltrated southern Iraq. "Iran has been trying to destroy our country since before the Prophet, and it is still trying to do so today," says Karim Gitan, a businessman in Basra.

This fits into a pattern of distrust many Iraqis now feel toward foreigners of all stripes. Besides bearing simmering resentment about the U.S. occupation, many Iraqis blame outsiders for the violence that continues to plague the country. Jamel Abed al-Naiby, local head of the Facilities Protection Service in charge of securing government installations, points to a section of oil pipeline that has been blown up 25 miles south of Baghdad. A thick plume of black smoke is rising above the highway. It's the fourth time that this part of the line, which connects Basra's oil fields to a refinery in Baghdad, has been hit. Iraqis can't have done this, he asserts. "The outsiders are trying to prevent us from rebuilding our country," he says, though he doesn't know which outsiders, exactly, are responsible.

The new government is struggling to keep up with the crises. Services everywhere are disorganized and unreliable. At Basra General Hospital, Dr. Adnan Athafa, the chief administrator, says it's tough getting steady supplies. Drugs are held in warehouses in Baghdad, and their distribution is erratic: "A few days ago we had an acute shortage of IV fluid. Now we have too much." He is short of morphine. The infectious ward, meanwhile, is filled with young children with measles. In the past the World Health Organization provided vaccines, but all the U.N. bodies have withdrawn from the country, and there are no vaccines available.

The clearest signs of progress are in the south. In Basra the private sector is booming. With its seaports on the Shatt al Arab and its proximity to Kuwait, Basra is rapidly re-establishing itself as an entrepot at the head of the gulf. Property prices have quadrupled in some parts of the city. Computer whiz Haider Khadim, 22, is among the risk takers getting the economy moving. He set up eight Internet cafes last year and, with that market saturated, is developing information-systems networks for private companies, including foreign ones, that are setting up operations in Basra. "Iraqis are very smart," says Hani al-Saadi, who recently opened an Internet-based phone service. "We are riding the wave."

Security is tight in Basra, owing in part to the rise of private Shi'ite militias that are increasingly taking over from the police at checkpoints and government buildings. Extremist Shi'ite groups are also flexing their muscles. Christian-owned businesses have been firebombed, prompting many families to flee north. Those people who stay tend to keep a low profile, like Amer Izzat Daoud. A devout Catholic, she was free to dress as she pleased under Saddam. These days her short-sleeve shirts and low-cut sweaters hang unworn in the closet. When she goes outside she covers her head to blend in among Muslim women and even wears black on Shi'ite holy days. "I am very angry," she says. "This is not my style."

Iraq's search for a new identity will be a long and difficult journey. Already the country's ethnic and religious divisions are beginning to reassert themselves, sometimes in threatening or violent ways. But Iraq has come a long way from its brutal, authoritarian past. Often to their surprise, Iraqis are realizing they are in many ways freer than most of their neighbors. ABC camera crew members recently traveled to the Iraqi-Syrian border crossing at Rabiah, northwest of Mosul. They were filming a long line of trucks passing under a huge portrait of former Syrian dictator Hafez Assad when a Syrian guard strode into Iraqi territory to tell them to stop. An Iraqi guard jumped to the journalists' defense. In Iraq today, he told the Syrian, "they can do anything they want." That, as Iraqis everywhere are discovering, is both a blessing and a curse.