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An Iranian woman walks past mannequins covered with Islamic clothing designed by Iranian designers during an Islamic fashion exhibition in central Tehran March 1, 2012.MORTEZA NIKOUBAZL

Big, boisterous and booming, Tehran defies the caricature so often painted in the West portraying Iran as a repressed, bitter, colourless society, throttled by sanctions and in the relentless grip of dour-faced mullahs.

Tehran seems utterly transformed since my first grim wartime visit to Iran in 1988, near the end of a bloody eight-year conflict that left a million people dead.

Even before landing, and even at 3 a.m., Tehran is vast and sprawling, a carpet of lights sweeping down from the cool heights of the wealthy northern neighbourhoods to the overcrowded poor slums in the south.

By day, it's a chaotic, traffic-choked modern city of more than 10 million (perhaps 15 million, if weekday commuters are included), capital of a nation defiantly proud of its history, culture and heritage and intent on reasserting itself as the region's most powerful player.

For much of the Arab world, Iran remains the historic Persian rival and enemy. Israel sees the Islamic Republic as an existential threat, one that has called for the destruction of the Jewish state. Successive U.S. administrations see it as a rogue, terrorism-sponsoring state. According to Human Rights Watch, Iran's theocracy is engaged in a "broad-based campaign … to severely weaken civil society by targeting journalists, lawyers, rights activists, and students" after the 2009 post-election demonstrations.

As the propaganda war rages and a confrontation looms over its controversial nuclear program, Iran forges ahead.

Its capital doesn't look beleaguered. Cranes festoon the skyline. Modern blocks of multimillion-dollar apartments march up the Alborz mountain foothills in prime locations north of the city. Hundreds of thousands are betting on a housing boom. Fuelled by vast reserves of oil and gas, Iran's economy has boomed even as successive U.S. administrations have attempted to isolate it.

As far away as Karaj, 30 kilometres to the west, modern new housing complexes, mostly high-rises but also planned communities of single-family dwellings, are sprouting in a fast-growing corridor that resembles the edge cities in the United States. A four-lane highway and high-speed commuter trains bring tens of thousands into Tehran daily.

As in most of the world's great cities, talking house prices is standard fare at north Tehran dinner parties full of the upwardly striving middle class.

"We borrowed from my family, my wife's family and the bank when we bought five years ago," says a middle-class, 30-something engineer, with the near-certain confidence that he got into the market at the right time. "And our house has more than doubled," he says, before adding with a tinge of worry, "so it was worth it – as long as we don't get a bubble burst like in America."

It's far different from the dark, fearful and partially deserted capital that I remember from 1988 during the so-called "war of the cities" when Iran and Iraq traded salvos of Scud-B missiles. Then the sickly smell of death wafted from buildings destroyed by the incoming missiles and everyone lived in fear of the next random blast.

Nearly two-thirds of Iran's 80 million people are too young to remember either the Islamic Revolution of 1979 or the devastating war with Saddam Hussein's Iraq that followed. Yet both continue to shape Iran's world view, even as it attempts to transform its economy from a massive oil-and-gas exporter into a diversified, 21st-century country.

In less than a decade, Tehran has opened four Metro lines that now whisk more than two million passengers daily on four lines. Two more are under construction. Fares are about 20 cents, less for monthly passes. But, like straphangers everywhere, there are complaints, mostly about crowding, less so about the cars at the front and back of each train reserved for women, although women can also choose to ride elsewhere. And cellphones work even in the tunnels. So, to the irritation of many, near-constant conversations fill the trains.

Clean, fast and frequent, the Metro would be the envy of many mega-cities. But there's a tussle with the central government over funding, flooding remains a problem in some stations and some want nicer cars. "Last year I was in China, they have French trains so I wonder why we are stuck with Chinese trains," one well-travelled commuter said.

Even "modesty" has been transformed. Tehran's streets are a blaze of colour. Many, especially older women, still wear the traditional black hijab. But Tehran's urban fashionistas wear clingy jackets, lots of make-up and flashy head scarves, pushing the limits with bright prints, gauzy whites and flimsy silks.

Long, elegant and tree-lined Vali-asr is called Tehran's Yonge Street by those familiar with both cities. Window-shoppers peer at luxury-car showrooms and fancy shops full of imported designer goods. Businessmen moan about the new express bus lanes on the west side, complaining that their well-heeled customers can't leave their cars (and drivers) idling at the curb any longer while they drop in to look at the latest offering in a fancy lingerie store.

Old Tehran still exists. South of the city's centre, in the cool shadows of Tehran's huge bazaar, beneath centuries-old arches, crowds jam the alleys. But there's also wrenching dislocation. Chinese and Indian imports are bankrupting tiny manufacturing shops and small clothing makers in what is now the world's 18th-largest economy.

At street-side coffee stands or high-priced restaurants, Iranians gossip about politics and hope, with apparent unanimity, that the looming confrontation with the United States will be defused.

When the talk shifts to domestic politics, the hot topic is whether Mohammed-Baqer Qalibaf, the hard-driving, pragmatic and wily mayor of Tehran, who has built a reputation for getting things done, will take a run at the presidency next year.

He has already clashed with President Mahmoud Ahmadinejad, the hard-liner who is on the outs with the top religious leadership and also was once mayor of Tehran.

So closely do Tehranis dissect the tea leaves of their murky politics that there's complex debate over whether Mr. Qalibaf is deliberately allowing huge revolutionary murals that covered some buildings to fade in parts of Tehran where they are unpopular, while repainting them in even more vivid colours in neighbourhoods where revolutionary fervour remains strong.

Mr. Qalibaf, a former Revolutionary Guard commander with a proven combat record and a growing power base in the capital, has been trying to build political bridges abroad – for instance, rubbing shoulders with world leaders at Davos. However, plans to visit the United States for a transit conference were blocked – apparently by Mr. Ahmadinejad.

There's much grumbling, mainly about prices. International sanctions aren't blamed, but rather the government's reduction of subsidies on everything from gasoline (still only 50 cents a litre) to foodstuffs.

In place of across-the-board subsidies, the government created a set of direct payments to the poorest to cushion the impact of price hikes, a scheme that seems to have worked. Even the International Monetary Fund gave it high marks. "My monthly expenses have more than tripled but somehow I can still manage. Everyone manages, it's the way we are," a teacher says.

More quietly, many are furious about endemic corruption and – unlike most subjects – are afraid to talk too much about it.

Some things haven't changed. The huge, walled complex that was once the U.S. embassy in the heart of Tehran remains a ghostly reminder of the takeover in 1979. Once a museum, then an "education centre," the buildings seem frozen in time, now mostly deserted and guarded by only a few bored basiji, the paramilitary "civilian volunteers" of the revolution who zealously engage in policing moral transgressions and were front-and-centre in cracking down on anti-government protests in 2009.

"No matter how hard they try, America can't crush us," boasts a basiji, although he is far too young to remember the 1979 revolution that ousted the pro-Western shah and created an Islamic regime.

But even Iranians who quietly oppose the ruling theocracy (and no one dares publicly oppose it after the crushing of the 2009 demonstrations) believe the country has been badly miscast and is subject to an unwarranted double standard.

"We didn't invade Afghanistan but we looked after millions of Afghan refugees," said a musician with no links to the government. "I don't want Iran to have nuclear weapons but I don't understand why it's okay for Israel to have them," he added.

At the other end of the political spectrum, a woman who came back to Tehran after decades of self-imposed exile in France, remains bitterly disappointed that anti-government dissent has been crushed or scattered.

"This is an old, sophisticated society with a great history and literature," she said. "Iran isn't going to disappear, it will be a major player no matter who is in power."

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