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Every afternoon, tens of thousands of Moroccans — mostly women in djellabas — trudge past the deserted guard posts that separate the Spanish enclave of Ceuta from Morocco, which surrounds it on three sides. The bundles of soap, noodles, socks, and oil they carry home for resale in Morocco are not an entirely legal traffic, but the Spanish authorities are less concerned these days about what leaves Ceuta than about what comes in — particularly to the impoverished hillside neighborhood of Príncipe Alfonso, whose unemployed and disaffected youth are a potentially fertile ground for jihadist recruiters. Last December, Al-Qaeda Number 2 Ayman Zawirhi appeared to recognize its potential, when he called for the "liberation" of the Spanish enclave.

But many living in Ceuta insist that they have more important concerns than terrorism. "Our problems are the problems of the Paris banlieue," says Mohamed Laarbi, neighborhood spokesperson, "not of the Casablanca ghettos." He cites a litany of examples of official neglect contributing to the poverty and despair in Príncipe. Still, when a string of suicide bombings struck Casablanca and Algiers this spring, Spain's border police quickly sent extra troops to shore up Ceuta's border with Morocco.

"I would consider Ceuta in a pre-jihadist stage," says Javier Jordan, a terrorism expert at the University of Granada. "But it takes outside recruiters to transform a marginalized area into a real jihadist breeding ground."

Still, there are worrying signs that some locals may be amenable to Zawahiri's message: For one, Hamed Abderrahman Ahmed, who spent two years at Guantánamo after his capture in Afghanistan, hails from Ceuta. And in 2006, two pilgrimage sites sacred to most Muslim North Africans but condemned as unorthodox by Qaeda-style Salafists were set afire. At least one local imam is known to have preached extremist messages, while the Spanish army based recently discharged three Muslim soldiers in Ceuta for allegedly holding radical views.

Evidence of radical infiltration was clearest last December, when Spanish police swooped on the neighborhood and arrested 11 men, seven of whom were charged with planning attacks in Ceuta and on the Spanish mainland, and sent to prison. The men were, according to investigating judge Balthazar Garzón, "moving from fanatical discourse to action."

It's not hard to see why Príncipe, home to 12,000 of the Ceuta's 27,000 Muslims, is an easy target for radicals. The neighborhood is sorely lacking in everything from police and sanitation services to job opportunities. But there's no shortage of weapons on the streets — a legacy of Ceuta's days as a drug trafficking center, before a police crackdown — and residents have repeatedly taken out their anger on local law enforcement officers by stoning police cars and torching the area's sole police post.

Locals like Laarbi say the authorities would be better off focusing on the conditions that prevail in Príncipe than on the danger of radical infiltration: "Príncipe's problems are subhuman living conditions, an administration that ignores us, and police who still call us 'moors.'" Says Mohamed Ali, leader of the Ceuti Democratic Union, an opposition political party. "Ceuta is two cities. All of the institutions, and all of the investments go to the center; the Príncipe gets nothing."

Despite the concerns, Spanish government delegate to Ceuta Jenaro Garcia-Arreciado insists the city is safe. "Certainly we're closer to terrorist nuclei, but the threat isn't any greater here than on the mainland. And given all the security forces in Ceuta, we are, paradoxically, one of the safest cities in Spain." He points out that with the help of Morocco, which appoints Ceuta's imams, the city keeps radical messages out of Príncipe's mosques. But Yalila Liazid, director of the Sidi Embarek Koranic school and daughter of Ceuta's most important imam, isn't so sure. "At the official mosques, the imams are well educated, and approved by three different bodies. But there are 'garage mosques' in Príncipe, just as there are in other parts of Spain, where fundamentalism is propagated. Ceuta never had a problem with Salafism before, but now, people are taking advantage of Príncipe's problems."

Liazid believes the media exaggerates Ceuta's problems, and that on the whole the city is a model for religious and ethnic harmony. Still, she admits to having visited the troubled neighborhood next door just three times in her life. Her hair wrapped in a canary yellow scarf, she gestures toward Príncipe. "That," she says, "is a forgotten neighborhood."

• Lisa Abend and Geoff Pingree
• Madrid fears extremist infiltration in its North African enclave, but the locals say Spain would be better off addressing their poverty and despair