SIMON MARKS: Nearly seven months after Saddam Hussein fell from power, at the Baghdad racetrack there are under starter's orders, and they're off. Three times a week, some of Iraq's finest Arab steeds battle it out for supremacy at the Baghdad Equestrian Club. And three times a week hundreds of Iraqis come here to while away a few hours and more than a few Iraqi dinars.
HASSAN KARRA, House Painter (Translated ): I've been gambling for 40 years. I usually gamble about 50,000 or 60,000 dinars, depending on my financial situation. I earn a little money, and then I gamble it.
SIMON MARKS: At the racetrack, unlike other parts of the city, it isn't immediately apparent that Baghdad is recovering from war. There was no bomb damage here, only a limited amount of looting, and club managers are proud of putting on a full race card every week. But things have changed here in a very real way. For the first time in 30 years, the racing is fair.
Today, more than 100 horses owned by the now-dead sons of Saddam Hussein no longer compete, and no longer have to win. Their jockeys don't run the risk of being physically beaten if they fail to finish first.
KASIM DAOUD, Jockey (Translated): Today there is no one to give us orders. No one talks to us the way they used to. Today when we see something wrong, we have the right to complain about it. No one can tell us to shut up. Even if the president of the club is doing wrong, now we can complain about it.
SIMON MARKS: The changes in Iraq have been sweeping-- at the racetrack, where they're not so obvious to the naked eye, and all over Baghdad, in ways that are more immediately apparent. The image of Saddam Hussein, once inescapable here, is today virtually impossible to find.
The center of the Iraqi capital remains scarred by the ruins of government ministries, defense facilities, and presidential palaces that were reduced to rubble by the U.S. and its allies. But in their shadows, a new Baghdad is slowly emerging, a city whose nearly six million residents are carefully probing and exploring life without Saddam, and wondering what the future entails.
You can catch a glimpse of the present down on Kiffa [ph] Street-- it means "Ambition Street"-- in the center of Baghdad. If you want cement, this is the place to come. And with major rebuilding projects under way all over the city, many customers do. Traders have been taking new deliveries from Lebanon and Turkey, and just down the road, hot water tanks are in big demand. Merchants told us that in the months since Saddam's fall, the local economy has picked up fast, and that reconstruction is fueling business.
SHAAB AHMAD, Water Tank Salesman (Translated): The prices are high. It's not cheap. But now the average citizen has the means to pay for things they couldn't buy before. Salaries are rising, and business is improving.
SIMON MARKS: But it isn't always easy. At a family-run furniture business, carpenters were painstakingly chiseling table legs when suddenly the power went out. Storeowner Nabil Adel says it happens at least once a day.
NABIL ADL, Carpenter (Translated): The raises are bad, but we're getting used to it. So we've arranged our work to fit around it. For instance, when the power goes out, we go and stain the wood, or do some other jobs that don't require electricity. So we keep ourselves busy when the power goes out, and when it comes back on, we go back to work.
SIMON MARKS: Nevertheless, life here is still far from normal: An unreliable electricity supply, water that can be knocked out for days. And at any time, the city's daily routine can suddenly be turned upside down by a deadly campaign of car bombs, acts of sabotage, and terror carried out by groups opposed to the U.S.- led occupation here.
SHAAB AHMAD ( Translated ): Right now the main issue for all Iraqis that you see in the streets is security. We need stable and continuous security. When you have security, you can go out and go to work. But now when you go to work, we're always worrying in the back of our minds about the safety of our families.
SIMON MARKS: Dr. Shafik Khodora cares for many Iraqi families. The "NewsHour" first met him back in march before the war began. Today he's still working at the Saddam Children's hospital, though the hospital now has a new name. When we met him earlier in the year--
DR. SHAFIK KHODORA: This is really-- you are always asking embarrassing questions.
SIMON MARKS: --He seemed nervous talking to foreign visitors, but also seemed courageous enough to deliver a carefully worded message about the leadership of Saddam Hussein.
DR. SHAFIK KHODORA: I think Iraq has become the garbage of the world.
SIMON MARKS: And who's to blame for that?
DR. SHAFIK KHODORA: I think-- always I blame people who have the power to do something.
DR. SHAFIK KHODORA: You could not trust anybody. Even when you came to me before the war, I was reluctant to talk to you broadly.
SIMON MARKS: Today Dr. Khodora has no compunction about openly voicing the opinions that he says he had to be more cautious about before.
DR. SHAFIK KHODORA: Believe me, most of Iraqi people are... well, couldn't smile. They were walking on the streets with masked faces, including me. Nothing makes you happy, because you feel that you are ruled by a person, and you have to do exactly what he wants, otherwise you'll be punished. That's was really a very bad situation.
SIMON MARKS: Like many of Baghdad's professionals, Dr. Khodora took his family out of the city as war approached, seeking refuge with relatives in neighboring Syria. When he returned to Iraq he found that local community leaders had defended his hospital against looters. But seven months on from the U.S. invasion, he says the hospital's facilities and supply of medicines, which deteriorated during the war, are only now back at their pre-war levels.
DR. SHAFIK KHODORA: Management is the same. Diseases are the same. Sources of the diseases still the same. I mean, we are still facing critical situations regarding poverty, regarding poor housing, poor hygiene. And these all are a challenge to the new government and a challenge to the coalition forces because unless they deal with these things and fix it, nobody can say that you have achieved any improvement or any aims.
SIMON MARKS: The hospital is still run by Iraq's ministry of health, and the ministry is run by Iraqis. There is a new hospital director who was appointed after the doctors here took a vote, and Dr. Khodora says that among patients and staff alike, democratic principles are gradually taking root.
DR. SHAFIK KHODORA: Some of them think that Americans are occupiers. Others think that they are liberators. I mean, different opinions. The one thing I am happy about is that everybody has the right to express his feelings freely. This is one of the major achievements.
SIMON MARKS: The U.S. officials running the coalition provisional authority, the CPA, the body that currently oversees Iraq, point to a variety of other achievements here over the past seven months.
There is now, they say, a vigorous free press. More than 170 newspapers are available on the streets of Baghdad, and satellite television receivers are some of the hottest items in town; dishes that could once get their owners jailed for six months are sprouting up all over the city like mushrooms. But some of the Pan-Arab networks Iraqis are watching, like many of the newspapers they're reading, are spreading a decidedly anti-American message.
The coalition says more than 1,500 schools have been rehabilitated since Saddam's fall, but one teacher here at the al-Haraq School in suburban Baghdad could be heard muttering, "Americans, the destroyers," when we walked through the doors. And though new textbooks have been distributed to many other schools, the principal maintains that the U.S. presence hasn't done anything for her students.
MAJIBA KARADALLA, School Principal ( Translated ): We haven't received any help in any shape or form from UNICEF or from any other organization-- nothing at all. The books that we're using right now are left over from the old Iraqi government. We haven't seen a single new book. But before we distributed them, I formed a committee to rip out the pictures of the former president, and also to rip out Hussein, and then we gave them out to the students.
SIMON MARKS: Salaries, though, are rising. Teachers earn up to 25 times their old rates of pay. Doctors, police, and other public servants have experienced similar rises. And the coalition also points to another achievement, the role that Iraqis themselves are now playing in the governance of the country.
MUWAFFAK AL RABBAIE: This is to be a model of democracy. This is going to be, economically, Japan of the Middle East.
SIMON MARKS: Muwaffak Al Rabbaie is a Shiite Moslem sitting on the Iraqi governing council, the 25- member body appointed by the United States to help the coalition run things here. Wounded in a recent car bomb attack, he resists suggestions that the members of the governing council are simply puppets of the U.S.A.
MUWAFFAK AL RABBAIE: Appointing ambassadors is a puppet. Analyzing and ratifying and approving a budget for what's left of 2003 and 2004 is a puppet. Running the country is a puppet. Building a new Iraqi army is an American puppet. Building a new police and new security forces and new civil defense corps is an American puppet. I think this is nonsense, honestly. We are building a new Iraq. We are taking-- gradually, I have to admit-- we are taking gradually these authorities and responsibilities from the CPA, from the coalition forces to the governing council.
SIMON MARKS: But the governing council still has its work cut out establishing its legitimacy to govern the Iraqi people. Many of its members, Dr. Al- Rabbaie included, spent several of the past 30 years living in exile, and aren't well known among those Iraqis who stayed and endured Saddam's regime. The council is charged with setting a timetable for the drafting of a new constitution and the holding of fresh elections here.
But there are other elements in Iraqi society that are challenging the council's right to govern. Take a closer look at Dr. Khodora's hospital, for example. While the pictures of Saddam Hussein have all gone, in the courtyard outside, there are some new pictures on display. Images of Islamic clerics have been posted all over Baghdad and all over the holy Shiite city of Karbala, two hours' drive to the south.
Tensions between radical Shiites seeking the establishment of a fundamentalist state in Iraq and more moderate clerics have exploded here in Karbala, a seat of Islamic learning for over a thousand years. Today, for the first time in three decades, Muslims from all over the Arab world can freely travel here. Sala Abdullah sells CDs and tapes of sermons by prominent imams and mullahs. Under Saddam, their possession would have placed his life in immediate danger. Today he's doing a roaring trade.
SALLAH ABDULLAH, CD Salesman (Translated): Under Saddam, no one could come and visit. They were scared to come, because the secret police would not permit it. Now they're even coming from other countries, like Iran and Pakistan. None of this existed before. Now, thank god, we've been saved from the former regime.
SIMON MARKS: Saved from the former regime and given the liberty to voice opinions that in many cases run counter to the aspirations of the liberators here.
MAN IN THE MARKET (translated): The Americans, they're all Jews. They're the enemies of Islam, and we are Muslims. And since they're Jews and the enemies of Islam, they're not really trying to improve our lives.
SIMON MARKS: The city, calm on the day we visited, has become a flash point between armed militias serving religious rivals. One cleric claims to have formed his own government to replace the Iraqi governing council, though few Iraqis appear to be paying him much heed. Many Shiite leaders, including one who sits on the governing council, insist that moderates are in the clear majority, and the divisions within the community do not herald any kind of more serious social upheaval.
MUWAFFAK AL RABBAIE: If you look at the aspiration of the Shia, the Sunnis, and the Kurds, you will find all of them asking for democracy; all of them asking for a unified country; a lot of them asking for decentralization of Iraq; a lot of them asking for good relationship with neighbors and with the West, and looking forward for the economic reconstruction in Iraq. So where is the split in our aspirations? There isn't.
SIMON MARKS: And back on Baghdad's Ambition Street, even some of those merchants like carpenter Nabil Adel, who have replaced Saddam's picture with those of religious notables, argue that when the country's constitution is written, there should be separation between mosque and state.
NABIL ADEL ( Translated ): In my personal opinion, religion has nothing to do with politics. Religion is on one side of the spectrum, and politics is on the other. What's needed from us is to worship god, and politics is completely separate of that. We don't like tying politics and religion together.
SIMON MARKS: When Dr. Shafiq Khodora drives home from work....
DR. SHAFIK KHODORA: I feel that this is going on the right course.
SIMON MARKS: He argues that the problems besetting Iraq are short-term, and will eventually disappear.
DR. SHAFIK KHODORA: Well, I think this is a tax, a tax you have to pay for the new era and for the freedom we'd like to practice. This is a tax that should be paid until things subside. I mean, it's worth it. It's worth it. We can overcome this situation.
SIMON MARKS: But less educated Iraqis are less patient. Seven months ago, spice trader Muhammad Fausi told us that people here would not welcome an American occupation. Today he says that's precisely what Iraqis now want to see end.
MOHAMMED FAUZI, Spice Trader: It's an occupation, and they admit it themselves. They say they're occupying Iraq. At the point when they withdraw, they will become a liberating army. When they leave and we have an Iraqi government and we have a president who is elected, only at that point will we say thank you to them.
SIMON MARKS: The duration and nature of the U.S. presence here remains a hotly debated issue across Iraq. The U.S. and its allies won the battle for control of the country, but still face a struggle to win over many hearts and minds.