“Everyone who comes to Aleppo goes ‘wow’,” says Rolan Chelhot, the manager of Aleppo’s Al Mansouriya hotel, housed in a 16th-century palace in the heart of the old town and its bustling souk. “Here, the Middle Ages and modernity live side by side,” he explains.

“Foreigners love it.” Before entering the hotel trade Chelhot used to be a DJ in town. It was the late 1960s, when Syria was trying its hand at independence following two decades of French rule (it became self-governing in 1946). But Chelhot soon witnessed the tightening grip of the government under President Hafez al Assad and his Baath Party. The western educated minorities started trickling out of the country and the nightclubs closed down.

Since Bashar al Assad took over nine years ago, however, his government has slowly distanced itself from the staunch socialist regime of his late father. Nowhere is the shift to a market economy felt more than in Aleppo, a merchant city for over a thousand years. Situated just 50km from the Turkish border, it is perfectly placed to benefit from the recent warming of relations with Turkey, a historical enemy but now one of Syria’s favoured trading partners.

Then there’s the demographic boom that has turned the city into a sprawling, dusty but magnetic metropolis, with various rural ethnic groups being drawn to its fold. A hundred years ago, Aleppo had fewer than 200,000 inhabitants. Today it is home to almost four million people.

At the crossroads between the Mediterranean, the Caucasus and the Arabian peninsula, Aleppo was for centuries a place where Arabs, Jews, Armenians, Turks and Europeans lived side by side. But after the ­establishment of Israel in 1948, Aleppo’s 50,000-strong Jewish population left almost overnight to escape persecution. Many went to their new homeland or the West. Several emigrant families rose to prominence, including the Picciottos, who relocated to Switzerland and became important bankers, and the Nahmads, art dealers based in New York and London.

Then, in the 1960s, with the arrival of the Baathist regime, the economy was nationalised, which prompted wealthy Christian families to pack their bags – this time for nearby Lebanon. Today, about 400,000 Christians remain in Aleppo – among them, Syriacs, Maronites, Chaldeans, Assyrians and Greek Catholics, each with their own clergy, churches and social clubs. In 2006, reflecting its changing religious balance, the city was chosen over Damascus as the Islamic capital of the Arab world by the Organisation of the Islamic Conference and the Islamic Educational, Scientific and Cultural Organisation. (The irony was that Damascus has historically been seen as the more religious of the two cities, while Aleppo was the commercial hub). The organisers’ attempts to integrate the city’s Christian minorities into the event were not a success. For Chelhot, “The attacks on the World Trade Center in New York and the war in Iraq have led to a hardening of Islam.” And the veil, which was never part of local customs, has become more widespread in the city, says Myriam Antaki, an author and member of one of Aleppo’s prestigious Christian families, which each year runs a French cultural week.

But trade is what keeps Aleppo’s inhabitants going, with many working in the textile market or the city’s age-old soap industry. “There is nothing to incite people to stay. Aleppo is on the edge of a desert,” says Georges Coussa, a resident artist. Except, of course, commerce. The government’s efforts to liberalise the economy are empowering the growing class of bourgeois merchants.

In recent years, Lebanese private banks have opened branches in Syria, and the country’s first ATMs can now be found in Aleppo. The government has also created a series of duty-free areas across the country where huge textile factories have opened up, trading mostly with Turkey. One of these, the Sheikh Najjar duty-free zone, is close to Aleppo.

In many ways, the city is flirting with its past. Aleppo was for centuries a powerful economic hub linking the Mediterranean to China via the caravan routes. The first French consulate in the world opened here in 1538. And while Damascus forbid European traders from settling there, the doors to Aleppo’s souks were open for business with the world.

“Aleppo is the culmination of all the cultures that lie on the silk route,” says Antaki. Its cuisine – with combinations of sweet and sour – reflects this. And even the local Arabic borrows words from Turkish and Farsi – a trait that’s often mimicked by tough businessmen-type characters from Aleppo on TV soaps.

With the rise of maritime trade in the 18th century, the silk route became redundant and so did this refined city. But it was the influx of thousands of Armenians fleeing massacres in Turkey at the start of the 20th century that kept the spirit of entrepreneurship alive.

Within just one generation the Armenians transformed themselves from impoverished refugees into successful businessmen. They created their own neighbourhoods, such as the Midan – originally a refugee camp. Later they moved to Villat on the banks of the Quwayq river, where they built churches, restaurants, patisseries, barber shops, bookstores and villas (from which the area takes its name). Their communities are still an integral part of downtown Aleppo; this is where you can buy alcohol, eat sou-beureg (an Armenian version of lasagne) at Chez Jeanot, and see girls walking round wearing tight jeans and stilettos.

Threatened with over-population, the city’s boundaries are constantly being extended. Wealthy businessmen are commissioning imposing houses on the outskirts. Well-to-do Armenians, nicknamed “Mr China” or the “King of Tyres”, now live in Chinese pagodas and miniature Versailles palaces around Aleppo’s university. “Traditionally, houses were simple from the outside and the treasures were kept inside,” says Antaki. “Mentalities have changed.”

On the outskirts, rows of rococo-style apartment blocks for the slightly less well off are going up fast. Each neighbourhood gains the title of “New Aleppo” until another one appears down the road. “We are left with places called ‘New New Aleppo’,” jokes Krikor Zobian, a local Armenian architect.

The periphery is not the only place that is changing. The centre around the iconic citadel is also getting a much-needed revamp. They are even installing parking meters in the hope of quelling the traffic.

For years this area had been in decline. When Aleppo was no longer the jewel of the Ottoman Empire, wealthy families who acted as consuls for European powers, such as the Poche or their cousins the Marcopoli, abandoned their palatial ancestral homes known as khans, which also doubled as consulates. They moved to greener areas around the Baron hotel, where Lawrence of Arabia and Agatha Christie once stayed.

The destruction of the old town reached its climax in the late 1970s, under an ambitious mayor with Haussmannian pretensions. Part of the city was replaced with a vast tract of barren land, ­recently filled with an imposing Sheraton hotel.

Aleppo’s old city became a UNESCO world heritage site in 1986. But it took the Aga Khan (head of the Ismaelis, a religious group present in Syria) and his foundation to revitalise the historic core.

“Many people have criticised us, saying we are causing gentrification and basically killing the old town’s spirit,” says the softly spoken Adli Qudsi, chief representative of the Aga Khan Trust for Culture, who has been upgrading the old town’s infrastructure and restoring the famous citadel. The work will be complete in two years’ time, with projects to renovate the city’s old wall and develop areas for parks and hotels. “The idea is to keep people in the city. If it loses its residents, it becomes dead and dangerous,” he says.

On the recently completed highway to Turkey, car dealers selling the latest Jaguars and Citroëns are ready for business – more proof of the cautious liberalisation ushered in by Bashar al Assad. The days of strict Baathism – when boys had to have short haircuts and foreign magazines were hard to find – are over. Huge malls replete with Costa coffee shops are being built in what used to be the olive groves. A Virgin Megastore is also on the way. Once Turkey is accepted into the EU, some feel Aleppo will reclaim its historic role as a vibrant economic gateway. Nauman Wannes, the owner of the Mirage hotel, previously known as the Amir Hotel, says, “It might not be tomorrow but in 10 to 15 years it will happen.”