A SOCIOLOGIST acquaintance at Boghazi University tells me a contemporary Turkish joke: "Our country's application for entrance to the European Union continues to be denied, but now at least Istanbul has been admitted."

The great capital of the Ottoman empire, which the founder of the Turkish Republic, Kemal Ataturk, turned his back on in 1922 when he made Ankara the seat of government and the symbol of modernity and progress, has got its own back. Istanbul is a boom town, the wild east-west of an increasingly powerful and rich state of 65 million inhabitants, at least ten million of them Istanbuliots. For the new government coalition established in June, EU membership remains a goal, but its priority is the extension of economic ties with central Asia and the Muslim countries. Istanbul is the hub of that expansion.

If you wander off into some of the back streets you will see several other worlds - drab, dense, noisy, but never without street life. A desk clerk in the Pera Palace, where Agatha Christie entertained herself, told me: "The city's falling apart amid urban poverty and squalor."

But the stock exchange of Istanbul is, along with Moscow, one of the stars of the emerging world markets. An economist friend related a conversation with a Turkish taxi driver who asked if he should sell his taxi and buy stocks and, if he did so, would it be ethical under Islamic law. It seemed a good bet in a country with annual inflation of about 70 per cent and where one million Turkish lira is worth just seven United States dollars.

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My conversation with my driver was a bit different since I do not know Turkish. The driver answered his mobile phone; it was his father asking when he would be home for dinner. He lived with his wife in a communal building of apartments owned by his father and brothers in which the separate families took their evening meal together.

He respected his religious traditions and assured me that the Islamist Welfare Party (Refah), which had per cent of the votes in the last elections and formed a coalition government before being forced to resign, would in ten years time have 40 per cent of the vote because it was uncorrupted.

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In the city's bazaar a Kurdish shopkeeper from Diyarbakr, who studied for a year at the American University of Cairo, shows me the "Levi" jeans and "Lacoste" polo shirts that he manufactures and sells. They are dead ringers for the real thing. He also goes to Finland to buy furs, which he sells to manufacturers who make leather jackets with fur collars, bought by Finnish tourists among others. He claims that the bazaar is self-governing because the merchants have no confidence in the state; if a debt is not honoured, the mafia takes care of the matter.

When I ask if he does not himself fear the mafia, he laughs and answers that it is made up of migrants like himself from Diyarbakr. On the Kurdish issue, he favours cultural autonomy and not national independence. He scoffs at the military's claim that its 13-year war against the PKK is, once again, at the point of "final offensives" and supports a peaceful resolution of the conflict.

The scale of the war in Turkish Kurdistan, where about half of Turkey's 12 million Kurds live and which has now been expanded into northern Iraq, is devastatingly awesome and incredibly expensive in both human and economic terms. Turkish human rights associations report that as many as 900 villages have been depopulated, many razed to the ground, since 1993. Nonetheless, the PKK's armed struggle for independence survives and sustains itself despite martial law in the 11 Kurdish provinces.

A good part of the budget for the military comes from the United States. In 1993 the top three recipients of US aid were Egypt, Israel and Turkey - the latter receiving almost $500 million. Political and security policies in the country are determined by the National Security Council, which is dominated by the army. It was the council that forced the resignation of the government this past spring.

That government had become discredited through its corruption and threats to Turkish secularism. Elected in December 1995, it was composed of a coalition of theWelfare Party, the "Islamists" with 28 per cent of the vote, and the True Path Party (DYP). According to one pundit, it was a coalition of "revolutionaries" (the Islamists) and "conservatives" (the DYP).

The corruption, associated with the DYP who had formed the previous government, provoked a mass movement in February this year marked by "a daily moment of darkness for the sake of permanent light". This mobilisation of the population against corruption was complemented by the emergence of public debates concerning the threats to secularism of theWelfare Party-led government, particularly involving women expressing their refusal to countenance the threatened imposition of Islamic law.

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This process of destabilisation, strengthened by rumours of an impending military coup, was actively enhanced by most of the press. At the end of the day the government resigned.

In the interval of more than a month, before a new coalition that excluded the previous governmental parties was formed, business proceeded as usual with little or no evidence of the gravity of the political situation. In Istanbul, people seemed, at least on the surface, both resigned and cynical. There were some who expressed a kind of Jacobinism and desire to intensify the "witchhunt" against the Islamists.

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But no doubt most realised that the problems had not disappeared. The mayor of greater Istanbul since 1994, Recep Tayyip Erdogan of the Welfare Party, remained in power. From the slum neighbourhood of Kasimpasa he is the "crown prince" for the party'sleadership.

Party supporters include some wealthy businessmen and serious intellectuals, not to speak of the "disgruntled masses". The system of education that those in power created against the threat from the left and now want to dismantle includes a structure of Imam-khatip religious secondary schools that has produced a generation of educated students who take their religion seriously. There has been no feasibility study of the restructuring of the primary and secondary education system that is supposed to take its place.

Meanwhile, there is an expansion of private universities whose language of instruction is English or French for the secular elite. All this suggests that the socioeconomic and cultural divisions may well continue and indeed deepen.

The latest and most important film success in Turkey, Eskya (The Bandit), portrays a man released from prison in the countryside. He comes to the "hellhole" of Istanbul to find his wife has settled there with an old friend of his, now a baron of the mafia. The film is shot in the inner-city slum ofTarlabasi, which is shown with a good deal of social realism.

The bandit turns out to be the only hero of the melodrama. In the denouement he shoots everyone and ascends to heaven. The magnificence and the elan of the city sometimes frame a backdrop, but they are not at all the message of the film.

Kenneth Brown is directorof the Paris-based review Mediterraneans and honorary fellow, department of sociology, University of Manchester.

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