Some neighbourhoods are like barometers for their cities. Tensions surface first in these areas and they can hold pivotal roles in upending governments and instigating unrest. This is especially true in the Middle East. In Tehran, for instance, presidents go out of their way to keep the hardened men of the bazaar on side. In Damascus, merchants in the Old City often have powerful friends in government. While in Benghazi, police knew the trouble spots to head to when rioting started in February.

But Algiers’ casbah – a warren of 16th-century souks, homes and Ottoman bathhouses – encapsulates this best. The casbah was the battleground of the 1954-62 war that cast off 132 years of French rule. Dramatised in Gillo Pontecorvo’s 1966 film, The Battle of Algiers, the Algerian independence movement was born in, and fought from, the casbah. Linked by shoulder-width passageways, the shadowy streets offered nooks for evasion and a base of operations for the revolutionaries.

After independence, the image of the casbah changed. Then in 1991, when a victory by the Islamic Salvation Front seemed likely, the government halted elections, resulting in an 11-year civil war. This time the casbah became a bastion of the Islamist movement. Guidebooks still dissuade tourists from entering alone.

Today Algiers’ casbah is in a sorry state. After 40 years of stop-start restoration efforts, and despite winning Unesco World Heritage status in 1992 – its earthen houses are caving in. Shafts of light pierce the once grotto-like streets. Litter is everywhere. The master craftsmen – previously 3,000 of them spanning 32 different trades – have dwindled to a handful. An area that once stood for liberated, industrious Algeria has been heading into a bidonville.

That could be about to change. In March a plan was announced to safeguard the casbah. The oil and gas-rich country, the largest nation in Africa, has promised a generous budget to help the 50,000 casbah residents. Meanwhile, the government of President Abdelaziz Bouteflika declared the lifting of a two-decade state of emergency that had remained in place despite the end of the civil war in 2002.

Mourad Betrouni, Algeria’s director of legal protection of cultural patrimony, says the timing is coincidental. From his office in the Ministry of Culture, overlooking the Mediterranean coast, Betrouni outlines the ministry’s efforts. “I don’t see any relationship between the Arab Spring and the announced plan. This plan was drawn up in 2005, but approved in April,” he says. It outlines what needs to be modernised, what needs to be demolished and which parts are of historic importance. We’re almost there for opening up to bids from architecture firms, in and outside the country, who can take charge of small plots around the area.”

Almost is the key word. Over the past 40 years, restoration projects have been announced regularly. Betrouni insists, however, that with only the budget left to tweak, the plan has a legal authority, placing the Ministry of Culture as “chief of orchestra” of casbah affairs.

A polish-up certainly feels long overdue. On Four Roads – a centre of handmade crafts – we meet Farid Smaallah, a 29-year-old carpenter and painter, in his recently opened workshop. Smaallah was commissioned to work on the Moorish interiors of the new VIP wing in Algiers airport. The money from this allowed him to set up shop, selling handpainted dowry boxes (now used as vanity mirrors) to wealthy Algerians and the occasional tourist. “Wasta [influence] is a big part in the processes of the casbah,” says Smaallah, pessimistic about the latest plan of action. “These talks have been going on since 2005, but entire cities have been built in as much time.”

Like all craftsmen in the district, Smaallah learnt his trade from a ma’alam – a master – part of a long line of master craftsmen who pass on their expertise from generation to generation. Bronze worker Mostafa Bouelkak, too modest to declare himself a master, now teaches a number of students. He is optimistic, as many of his charges intend to set up on their own in the future. But the diversity of trades in the casbah needs to be rectified, bringing back the instrument makers, silversmiths and tailors once found throughout the neighbourhood. That’s only going to happen if the they have people to sell to. But unlike in, say, Marrakech the all-important tourists are nowhere to be seen.

Belkacem Babaci is the president of the Casbah Foundation, an NGO that worked with the government to reflect the needs of locals in the new plan. Babaci is born and raised casbah and remembers its golden age, a place of solidarity, scented by wild basil that sprouted anywhere sunlight penetrated.

“The place has been isolated for 25 years but I’m confident that what we spend on development we’ll get back in no time,” he says. “This area is five times bigger than any such casbahs in Tunisia.”

So would it work for Algiers’ historic area to go the way of other North African medinas – become an evocative, if polished, network of boutique hotels and Lonely Planet-approved teahouses? “The future is tourism,” agrees Babaci, but that must come slowly. “Once the restoration is complete, we will begin receiving tourists. We plan to create a hotel of 20 rooms first, to see how it works.”

The casbah’s charm is that it’s a stunning landmark that ordinary folk still live in. But this hampered previous restoration efforts. Over 80 per cent of the houses are privately owned, some with three or four families living around a tiled, Damascus-style courtyard. The government, too, previously had no legal clout to pressure anyone to get their home in shape. The new plan will see the Ministry of Culture offer residents up to 50 per cent of the funding needed for the restoration of their house. The rest, we’re told, can come from other channels within the government.

Algiers is overcrowded and this is putting pressure on the concrete towers being built on its outskirts. Brazilian analyst Raquel Rolnik, an independent special rapporteur to the UN, was invited to the country in July. “I was impressed by the amount of money that the government is investing in state housing,” she says from São Paulo. “We’re talking about 20 per cent of the total budget of the country.”

But these projects are also putting the casbah at risk. Rolnik tells Monocle that families are given social housing if where they are living is deemed to be a slum – so if you want a shiny new apartment you don’t want to fix up your casbah hovel. And while Rolnik agrees that the new social housing is of a good quality she says it lacks access to services. A maintained and well-run casbah would ease the need to construct more dislocated apartment blocks and it would reintroduce the area into the existing fabric of the city.

Indeed, the recent plan is one of a number of strategies dragging Algiers out of its lethargy. Pockets of investment are all over the city. The Modern Art Museum of Algiers (MAMA) has had a return to glory and the Grande Poste – arguably the world’s most elaborate and decadent post office – has been polished up. Meanwhile, the Tramway d’Alger launched in May carried over 1.5 million passengers in its first two months. This will be joined by an extensive underground metro in October.

Things are happening, but the streets remain full of armed police. Mostafa Benfodil, a playwright and journalist on the El Watan daily, and Amina Menia, an artist whose work explores the complex relationship Algerians have with areas of historical importance, say this tension stops tourists coming to the country. “The checkpoints, the police with guns: it gives a bad image of the city,” says Benfodil.

Menia disagrees that the Arab Spring had any effect on this decision to restore the casbah. “We had our Arab Spring,” she says, referring to the pro-democracy riots of ’88. Others disagree, however, suggesting anger over high unemployment, corruption and an unrepresentative government could lead to fresh unrest. But Algiers feels full of possibility. There’s a very visible youth pepped on football and hungry for opportunity. The casbah – even in its dilapidation – is a masterpiece waiting to be sensitively tapped.

Menia acknowledges the city’s possibilities as we look across the Med to the cruise liners anchored on the horizon. “But in this country, it’s always a matter of waiting.”