Colonial Revival in Panama City's Casco Viejo

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THEN AND NOW: A downtown view from the promenade in the Casco Viejo

It's been nine years since the Panama Canal was returned to sole Panamanian rule following almost a century of U.S. control. Since that time, Panama — a slim slice of a nation wedged between the Pacific and the Caribbean — has quietly emerged as Central America's must-discover hidden gem. And no wonder. With its mix of the eco (dense tropical rain forests), urban (a Miami-like skyline) and aquatic (crystalline diving sites), Panama is an all-in-one destination where the dollar is legal tender — and still manages to go a long way.

Nowhere does it stretch further than in the Casco Viejo, Panama City's quaint, compact, colonial-era Old Town. Dating from the early-16th century and surrounded on three sides by the Pacific, the Casco — as it is affectionately known by locals — was named a UNESCO World Heritage Site in 1997 and served as the backdrop for much of the action in the latest James Bond film Quantum of Solace. The Casco's appeal is clear: grand cathedrals, fountain-filled plazas, timeworn cobblestone streets, even a bullet-scarred Presidential palace, which was attacked during the 1989 U.S. invasion. And now its mélange of Spanish, French, neoclassical and Caribbean architecture is being lovingly restored by farsighted investors. (See a special report on James Bond.)

While most of the development is still to get under way, a clutch of Casco cafés, hotels and cultural sites have already had their makeovers. The most eye-catching is the Canal House Hotel (, an elegantly renovated late 19th century mansion where actor Daniel Craig stayed during the three-month Bond shoot. The hotel's three guest rooms are named after the Canal's massive locks — Miraflores, Pedro Miguel and Gatun — and each has a wrought-iron balcony with views of the Casco's Cathedral Plaza and surrounding red-tiled roofs and cobblestone alleyways.

At the heart of the Casco are three squares: Plazas Bolivar, Herrera and Independencia, the site of the city's dramatic 17th century cathedral. Moments away you'll find numerous Casco newcomers — places like Indigo (, a North African–inspired restaurant and lounge, and Ego Café, tel: (507) 262 2045, with its adventurous Panamanian-Mediterranean menu. You can sample rich ice creams and sorbets — from basil to Earl Grey — at Granclement, tel: (507) 228 0737; browse through intricately carved wooden crafts at Karavan Gallery, tel: (507) 228 5161; and take home one-of-a-kind pieces by local artists from Casa Gongora, tel: (507) 506 5836, a gallery and museum in one of the Casco's oldest surviving buildings, which dates from 1756.

End the day with a sunset stroll along the promenade on the Pacific to see Panama both old (Las Bovedas, a 17th century Spanish fort) and new (Frank Gehry's Museum of Biodiversity, which is still under construction but rising rapidly) before heading to the recently opened Pony Club ( for dinner. Panamanian chef Clara Icaza has worked at Manhattan hot spot Aquavit, and her nuevo-Panamanian menu includes signature dishes such as Turkolimano (grilled jumbo prawns, tomato and feta with lemon-ouzo vinaigrette) and squid risotto in a broth of octopus and roasted red pepper, all served in a pale-wood dining room and accompanied by an ambitious wine list. After dinner, it's just a short drive back to the Casco Viejo and its many historic glories.

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