A five-star hotel is taking shape on a block blasted by gunners during a Kurdish civil war in the mid-1990s. Crews are planting trees and building roads.

For the first time in years, there are more briefcases than firearms in the halls of local bureaucracy.

They aren't exactly boom times for Iraq's Kurdish region, but thanks to U.S. and British air patrols that keep Iraqi troops out, it's a true land of opportunity compared with the rest of the country, which lives under Saddam Hussein's pervasive controls.

"See what we can do with freedom? I can see a bright future," said Mohammad Ismail Jamil, owner of Matbax, a fast-food restaurant that mimics McDonald's right down to a rip-off of the golden arches logo.

Iraqi Kurds have used ingenuity and intrigue to nurture a spirited economy in their northern enclave. Business trips can turn into smuggling runs to bypass U.N. trade sanctions.

Phone calls are routed through British exchanges because there is no access to Iraq's telecommunication system.

A decade ago, the region was in ruins after Hussein's army rolled over a Kurdish uprising after the 1991 Persian Gulf War. Western intervention forced Iraqi troops to withdraw and left the area informally autonomous. Then the Kurds began to fight among themselves.

Calm has prevailed only since 1998, when a truce ended four years of clashes between the two main factions.

The U.N.-administered oil-for-food program with Iraq, which began in 1996, has helped jump-start the Kurdish region, a landlocked arch of mountains and arid plains that hugs the borders of Syria, Turkey and Iran. The Kurds receive 13 percent of the total oil revenue -- about $7 billion spent or earmarked so far, U.N. officials said.

Now, investment cash has started to arrive from Kurds abroad. Local entrepreneurs can turn to banks for business loans. Shops are full of goods, from handmade furniture to top brands of liquor.

"We've gone through war and fighting. Now it's the time for business, God willing," said Karzan Taher Aziz, manager of an Internet salon scheduled to open this month in the old bazaar district in Irbil, about 200 miles north of Baghdad.

"The Kurdish people have always been a persecuted people," Aziz said. "The Internet helps us see the world and what we can become."

Around the corner, there is a steady stream of customers climbing the cracked stairs above a fishmonger to reach the Harem Internet Cafe, open from 8 a.m. to midnight. Dozens of other Internet cafes have sprouted around the Iraqi Kurdish zone in the past two years.

"I really have a sense that better times are ahead here," said Harem's owner, Haval Abdul Karim. "I wouldn't have said that a couple years ago."

It's still not easy.

The U.N. economic sanctions on Iraq also apply to the Kurds' enclave, so some businessmen sneak in computer components, automotive parts and other prohibited goods from Turkey and Iran.

The Kurds' political limbo also prevents such necessary business tools as local credit cards. Prepaid cards with British exchanges are used for most phones.

Hussein's Iraq also looms large. It still controls electricity supplies to the Kurdish region, and Kurds must travel outside their Western-protected zone to renew their Iraqi passports.

"The whole system we work under is tough. We are a kind of semi-country that has none of the privileges of a real one," said Ouzeer Haji Kelan, owner of a store that sells a mix of cell phones and gadgets like electric muscle toners.

"We don't know the future," he said. "We don't know what will happen."

Uncertainty over whether the United States will attack Hussein's regime may be the biggest drag on the Kurds' economy.

"Many people are still hanging onto their money," said Yashar Haji Kaharkhi, a carpet merchant. "Fear is not good for the economy."

Iraqi Kurds stroll in a bazaar in Irbil, part of the northern Kurdish enclave protected by U.S. and British warplanes. A carpet shop in Irbil reflects the entrepreneurial spirit. Because of U.N. sanctions against Iraq, some goods are smuggled in.