In a smoky coffee shop in the Kurdish town of Salahuddin, two dozen men sat around a big-screen TV last weekend, watching the footage from peace demonstrations all over the world. And scowling.

"No war with Iraq?" one elderly man hissed. "What do those people know about war? They should spend five minutes as a Kurd. That would change their minds."

The men around him -- dressed in the traditional baggy trousers, cummerbund and turban of Kurdish warriors, or peshmerga -- all nodded in agreement. "So they say 'no war,' " another man said. "They made this regime, but now they do not want to fix the mess they made."

These days, people here in the Kurdish self-rule area of northern Iraq keep their TVs tuned to Fox News. The hawkish American news channel is right in sync with Kurdish sentiment. The overthrow of Saddam Hussein, the dictator the Kurds accuse of genocide, is so close they can taste it. There are no peace marches in the streets of Erbil or Suleimaniya or Salahuddin. For them, the war cannot start soon enough.

But support for the U.S. military intervention is a gamble for the Kurds. For more than a decade, they have ruled themselves, and pieced together a tiny but flourishing nation. Now, it hangs in the balance: Will the Kurds take the lead in a new Iraq, or will Kurdistan disappear once again?

To arrive here is a bit like landing in Oz. To the south is Saddam Hussein's repressive regime, to the north the harsh theocracy of Iran's Islamic Republic. Syria's police state is on one side and tanks from Turkey, with its harsh anti-Kurd policies, are lined up on the other.

But turn on the television in Suleimaniya, and flip through a dozen Kurdish channels: There is the prime minister, Barham Salih, being grilled in a town-hall meeting by his constituents. Pick up the newspaper in Erbil: A stinging editorial criticizes the inter-party squabbling in parliament. There is an Internet café on every city corner, and no Web sites are blocked on their computers. Foreign reporters are welcome to visit prisoners in the jails; military commanders on the border points are also happy to answer questions.

"I'm not saying we're very good in everything," said a modest Fouad Baban, a professor in the medical school in Suleimaniya and one of his nation's chief proponents of a pluralistic society. "It's only relative. People coming from Baghdad see it as another country -- they have no satellite television, no free newspapers or television or organizations.

"We are just practising democracy, but we are far, far better than Iran, Baghdad, Syria, Jordan -- our neighbours with a long history of statehood. They are at least 80 years old, but tell me: In which one you can say something critical of the head of state?"

For the past 12 years, the Kurds have laboured at their democratic experiment, largely ignored by the world. But suddenly the non-state of Kurdistan is centre stage. The Kurds and their many supporters hold up what they have achieved in the self-rule area as a blueprint for a new Iraq -- proof, they say, that a democratic, pluralistic system can work here.

But Saudi Arabia and Kuwait are deeply threatened by the idea of an American-backed democratic government on their doorstep, and the ayatollahs who rule Iran cannot hide their horror at the idea. Syria doesn't like it, and Turkey, with about 17 million Kurds within its own borders, has no desire to see them play a key role in a renascent Iraq. For all those who see the Kurdish achievement as a model, there are as many who would like to see it disappear.

When the cartographers in Paris and London sat down early in the last century to draw the boundaries of the modern Middle East, they overlooked the Kurds, an Indo-European, non-Arab people whose distinct language most closely resembles Farsi (the language of Iran). Most Kurds are Sunni Muslims, though there are Assyrian and Chaldean Christians as well. But no Kurdistan was carved out of the remains of the Ottoman Empire.

Instead, the Kurdish population was parceled out across Turkey, Syria, Iran and Iraq. About 25 million of them live in the region, in mountain villages and dusty cities on the oil-rich plains. They are the world's largest group of stateless people. And everywhere, they have been a persecuted minority. Turkey's forces have waged a bloody war against Kurd separatists for decades; Iran and Syria have harshly quashed independence movements.

But no one has targeted the Kurds like Saddam Hussein. When the Iraqi leader took power in 1969, he set out to "Arabize" his multi-ethnic country. He has sent tanks to raze Kurdish villages, cemeteries and orchards, dropped nerve and mustard gas on Kurdish towns, and had Kurdish men and boys rounded up in the night and taken them away to mass graves.

Kurdish leaders say about 200,000 of their compatriots died in Saddam's anfal -- hiscampaign of conquest -- which they call genocide. Human-rights groups say the figure is likely closer to 100,000, but no one disputes its brutality.

Even the current autonomous zone, home to 3.7 million Kurds, has bloody roots. In 1991, U.S. President George W. Bush senior encouraged Iraqis to rise up against Saddam Hussein -- then provided no support for their rebellion, and stood passively by while Mr. Hussein exacted his revenge. Finally, late that year, a UN resolution created the no-fly zone in northern Iraq, and British and U.S. fighter jets began to patrol the skies here -- which afforded the Kurds a certain protection from Baghdad.

In that tenuous environment, they began their experiment. They held elections in 1992, and weathered old men and women came down from the craggy mountains to line up at poll stations until well past midnight. Enterprising businessmen built a phone network, which patches calls by satellite through London. The government began to rebuild the villages and set up the television stations. They opened medical schools, and doubled the number of doctors.

They also trained an army, and even assigned traffic police in smart blue uniforms to check for seat-belt use. "We are the most advanced part of Iraq," said a beaming Jalal Talabani, head of one of the two ruling parties, the Patriotic Union of Kurdistan (PUK).

And now they gamble, waiting anxiously for the United States attack on Iraq that everyone here is sure is imminent.

Being reabsorbed directly into a democratic Iraq wouldn't work for the Kurds. They make up only 20 per cent of Iraq's estimated 23 million people, and in any straight proportional-voting system, Shia Arabs (60 per cent of population) would rule.

But the Kurds also know that after a war, their neighbours would never allow Iraq to be carved up; they will permit no independent Kurdistan on their borders, and the U.S. government has said firmly that a new Kurdish state is not in the interest of the region.

So the word on every Kurdish leader's lips these days is "federalism." Whatever their private hankerings for a truly independent Kurdistan, they have subsumed them -- at least publicly -- into a commitment to a federal Iraq. The system they envision would look something like Canada, with Kurds a distinct society in two or three provinces in the north managing their own budget and matters such as education, but with a large role in a central government in Baghdad -- and, of course, a share of the country's oil wealth.

"We will lose some freedom, no question," said Hoshiar Zabari, chief of international relations for the other party in power, the Kurdish Democratic Party (KDP). The peshmerga will be subsumed into a national military, and the Kurds will give up control of their natural resources and their foreign and fiscal policy.

"But it will be worth it," the eloquent Mr. Zabari said firmly, straightening his silk tie. "We will be safer and more comfortable if we have regime change. While Saddam is there, we live under mortal threat."

The Kurdish territory is officially under two sets of sanctions -- the United Nations embargo on trade with Iraq, and a second, internal trade ban imposed by the bitter Mr. Hussein. But there's no trace of sanctions in the bustling bazaars of Erbil and Suleimaniya: Store windows gleam with Italian coffee makers, Swedish washing machines, French linen shirts, Ecuadorean bananas, endless Spice Girl videos on DVD and all the latest electronic equipment.

Sami Kasab's small store in Erbil, for example, has the latest-model Sony PlayStation and all the newest games. He has Microsoft XP for sale too -- a bootleg copy, of course. Mr. Kasab gestures to the shelves of pirated games, software and movies, and grins. "They -- the UN -- won't let me buy real ones. So I think of it as my own little sanctions-compensation program."

The PlayStations, and everything else in the bazaar, are, of course, smuggled. The goods have all come into Kurdish territory illegally. Produce and computers come through Iran, vacuum cleaners and BMWs from Turkey. Food and gas are brought from Baghdad by enterprising traders who risk the journey into Saddam-held territory because they can buy goods so much cheaper there. Plenty of cars come on that route too -- shipped to Baghdad from the United Arab Emirates, then driven north to Kurdish territory past bribed checkpoint guards.

In a brilliant normalizing manoeuvre, the Kurdish government bankrolls itself by taxing the smuggling. Kurdish traders are free to bring illegal goods over the borders, providing they pay up at the customs office. The government also collects transit fees from each of the 1,500 huge oil trucks that steam north from Baghdad toward Turkey each day along Kurdish roads, defying the sanctions with the export of oil that earns Mr. Hussein more than $2-billion (U.S.) each year.

The U.S. government estimates that the Kurds collect as much as $1-million a day on those transit fees. The Kurds also receive 13 per cent of the oil-for-food revenue administered by the United Nations, all of which goes into development projects. Most of the 4,500 villages razed in the anfal have been rebuilt; there are gleaming new sidewalks, playgrounds, schools and sewers in every small town.

In fact, the government says, the level of development surpasses anything achieved under Baghdad's rule. Infant mortality, for example, is 58 deaths per 1,000 births -- half the rate in the rest of Iraq.

But until the sanctions are lifted -- that is, until Mr. Hussein is gone -- there can be no foreign investment here, and no access for the Kurds to the huge Turkish market. So today, the economy depends on remittances from Kurds who have won refugee status abroad, and on aid. "It's a strange way to run an economy -- cheques we are given by the UN, and smuggling," Mr. Kasab said. "I'm a trader. Let me do business."

Even internally, though, not all is harmonious. In the region's first elections in 1992, the PUK and the KDP split the vote. They agreed to rule together initially, but fought over power -- and over the lucrative transit fees. By 1996, the squabble escalated into what is known here as the civil war, and more than 1,000 soldiers died. Madeleine Albright, then U.S. secretary of state, brokered peace between the parties in 1998, and since then the power-sharing agreement has held, with the PUK ruling almost two million people in the east, and the KDP two million more in the west.

But the division is absurd. There are two phone networks, and one cannot call KDP territory from PUK areas. There are two sets of licence plates for an area a bit more than half the size of New Brunswick. And to make the pie big enough to divide, they have set up a plethora of government ministries (human rights, humanitarian needs, peshmerga affairs) and offices (one new building to register births, another for deaths). "Aren't we civilized?" one minister asks with a wry smile.

There are another dozen political parties here -- ranging from hard-line Communists to radical Islamists -- but they have no illusions about the fact that they exist at the pleasure of the PUK and KDP. "The PUK and the KDP really control the situation here," said Omar Abdul Aziz, a spokesman for the Kurdistan Islamist Union, "but not all the details."

His party, for example, has been given nominal control of the Justice Ministry. "But there is some intervention from the PDK." It's PDK members who write the laws, for example -- and run the courts too.

The words "democracy, human rights, self-determination" may appear in the logos of both parties, but the territory is still governed on patronage and alliances. "Traditionally there is no such thing here as human rights," said Safwat Rashid Sidqi, director of the Kurdistan Human Rights Organization. "Now it's on all the banners and in the party slogans, every leader is calling for democracy. But in practice, if they could be in power as totalitarians, they would do it for their own goals.

"We saw this in the internal fighting of the 1990s, where every principle of human rights was violated. There was killing of political prisoners, confiscation of property, deportations, discharging people from their jobs."

Mr. Sidqi prefers to call the current situation "a margin of freedom" -- though he acknowledges that his organization is free to publicly criticize. Though the parties "don't like our existence," the human-rights group's complaints are tolerated.

However, Mr. Sidqi said, there are still people arrested without warrant. He has attempted to defend people jailed for work against the PUK or KDP, and been told at the jail that no lawyer would be required: "This one came with orders from the politburo -- 'Keep him until we send for him.' "

The primary targets these days are members of Ansar al-Islam, a splinter group of radical Islamists whom both the Kurdish government and the United States say is working with al-Qaeda.

Still, human-rights groups and journalists have been permitted to visit jailed Ansar members in the Suleimaniya prison, and they have few complaints about their treatment.

As well, while the bulk of the newspapers and television stations here are funded by one party or another, there are independents too. The best-read paper is called Hawlati (the Citizen), founded two years ago by a man who had made some money in the printing business. He put a 1960s printing press at the disposal of a handful of reporters who had learned their craft in Saddam Hussein's state-run media.

"We have very little experience of a free press, of doing investigations," Shwayan Mohammed, a co-founder and staff writer, said ruefully. "But we're learning."

Hawlati has taken on the government over inefficiency and kickbacks on government contracts. The one thing that's off-limits, Mr. Mohammed said, is discussion of the party leaders' finances, and where the fiscal lines are drawn between the parties and the government. Though the Kurdish parliament has passed a new free-press law, Hawlati's editor-in-chief Aso Hardy was sentenced to a year in prison after the paper published a report on the financial dealings of the PUK last year. The sentence was dropped before he went to jail.

"People were executed by Saddam's regime for speaking against him," said one editor, Sirwan Anwar, listing off the names of colleagues killed in the years of Baghdad's rule. Here, he said, "things are better, but not perfect."

Many Kurds are equally frank about the defects in their new system. Dr. Baban complains that the bloated bureaucracy has actually done little to improve health or education. And while there is a patina of prosperity in the cities, most Kurds still live in small, concrete-brick village houses, where the icy chill of winter is held at bay with just a small dish of burning charcoal.

Yet the greatest advantage of life here is less tangible. "The most important thing is that I feel that I am free," said Fouad Tawfiq, an engineer who spent 14 years and nine months in a Baghdad prison, accused of supporting the PUK. He was released in the amnesty Mr. Hussein decreed last October.

"In the old days, there were nights when I couldn't even get to my house on the edge of town because there were too many men with guns in the way. Now, I can say we are safe -- not 100 per cent, because Saddam is still there. But safer."

The latest U.S. plan for postwar Iraq would see a military governor in charge for at least a year, a plan the Kurdish leadership (like the rest of the Iraqi opposition in exile) flatly rejects. "I cannot agree that in the beginning of the 21st century there will be a military ruler," PUK head Jalal Talabani said last week. "Why can't we rule ourselves? We are capable. . . . We are for ending dictatorship and replacing it with an elected federal system."

The opposition proposes a transitional government made up of Kurds, Shiites and exiles, paired with dissidents from inside the country -- though Kurdish leaders say privately that they know the U.S. will be running Iraq.

The Kurdish vision of a federal state seems to have some sympathy in Washington. To pull it off, though, the PUK and the KDP are going to have to settle their differences quickly. There are signs of movement in this direction: Mr. Talabani said the two sides have agreed to a joint military command of the peshmerga for the coming war, and ministries are being merged. The test will be the grappling between Mr. Talabani and PDK head Masoud Barzani over who becomes leader of the united Kurds.

Both sides are counting on the idea that the achievements of their mini-state will be enough to win them a key role in the next government in Baghdad, whoever leads it. "Our self-government experience is truly relevant to the future of Iraq," said Mr. Salih, the prime minister. "In reality, how could we be sidelined? It is not as if freedom could be delivered without us Kurds."

Stephanie Nolen writes on foreign affairs for The Globe and Mail.