BAGHDAD, Iraq - In Iraq, glimmers of hope can be found in the unlikeliest of places.

Few suffered as much in the war as Mohammed Abed, the tailor who found the bodies of his wife, his mother, his sister and his cousin in the rubble of a Baghdad slum after a missile struck the marketplace outside his shop last March.

For Abed, as for the rest of Iraq's 25 million people, it has been a tumultuous year in which their country was invaded and Saddam Hussein, once their all-powerful leader, was pulled from a hole in the ground and arrested. A land held together for decades by force and dictatorship has shattered into fragments, often rivalrous. Insurgency and terrorism continue to take American, European, Asian and Iraqi lives.

Yet for all the hardships that have compounded Abed's grief - jobless brothers, power cuts that shut down his sewing machines - Abed, 31, exhibits little of the anger he sometimes betrayed in previous conversations with The Associated Press.

Having never known anything but Saddam's suffocating rule, he sees the beginnings of democracy and economic revival, and with U.S. soldiers on patrol he feels protected. "Their presence lets us sleep at night," he says.

Still, such glimmers of hope are rare. The construction of a new nation has been much slower and more painful than most anticipated. While there are those like Abed who feel protected, many others have seen their homes raided by U.S. soldiers searching for insurgents, or have been caught in the gunfire and bombings mounted against Americans and Iraqis alike.

Iraq's U.S. occupiers speak excitedly about new infrastructure, new institutions, new possibilities. But many Iraqis describe themselves as a defeated people, and have resigned themselves to hardship and chaos.

"At first we felt the situation would get better, because we were liberated from Saddam Hussein. For six or seven months, there was a general feeling that everything was going well," said Ahmed Ridha, a 24-year-old pharmacist. "But now that dream is destroyed."

Much of the insurgency is concentrated in central Iraq, and there are parts of the country where violence is less frequent and reconstruction moves ahead with less trouble.

The big picture remains uncertain. U.S. officials hope Iraq will become a model for democracy in the Middle East. Some Iraqis hope it will become a religious state more along the lines of Iran. And with new attacks that appear designed to sow hatred, many believe its patchwork of ethnic and religious groups could fracture into civil war.

They worry about whether the Americans can win the guerrilla war, and whether they will be forgotten after the U.S. presidential election that many suspect is driving the timetable of their recovery.

For now, Iraqis live in fear - of American soldiers, of the insurgents who have killed hundreds of those soldiers and even more Iraqis, and of the kidnappers and thieves who have leaped into the security vacuum to make a quick dinar.

All this keeps factories and businesses shuttered, while the dissolution of the Iraqi army has fueled widespread unemployment that in turn worsens the security situation.

Basic services like electricity, water and sewage were devastated, and only now are reaching pre-war levels - not nearly enough to meet increased demand. Daily oil production is 2.2 million barrels, well below the pre-war production of 2.8 million barrels a day, the Oil Ministry's Assam Jihad said.

And politics are in turmoil. While coalition officials speak with enthusiasm about a bill of rights and neighborhood-level democracy, they have had to cancel their plans for selecting a sovereign government and have appealed to the United Nations to help find a new formula. The occupation will be longer and more expensive than the U.S. government initially envisioned.

Mahmoud Othman, a member of the council appointed by the United States to run Iraq, said Iraqi and U.S. leaders have all failed the Iraqi people.

"We promised people democracy and they don't even have security. We promised people better services but they don't have better services. We promised people that the whole economy would be better, but they have more unemployment now. We promised people they would have more say in where their country was going and ... they don't have a say in anything," he said.

"The Americans, when they came here, said 'We won the war, and we want to win the peace,'" he said. "They didn't win the hearts and minds of the Iraqi people. People were much better off a year ago."

Not so, says Lt. Gen. Ricardo Sanchez, the commander of coalition forces. He believes the Iraq operation will one day be seen as "a remarkable case study in what a powerful, benevolent army can do."

Coalition spokesman Dan Senor said in an interview that while many Iraqis express frustration at their lives, they are generally pleased with the path their nation is taking.

"If you say, 'Look past the central services, look past the economic frustrations of daily life, would you rewind to one year ago?' I believe most Iraqis would say, 'No way,'" he said.

Indeed, few Iraqis want a return to Saddam's era, when hundreds of thousands died at the hands of their government. However, that doesn't mean they're happy with the occupation.

"We were so glad when they got rid of Saddam, but we're still waiting for changes," said Kahla Rahim, a 30-year-old telephone operator. "Our hopes were tied to the promises they made before the war: reconstruction, electricity, security. I'm not hopeful any more."

Comparing Iraq to Germany and Bosnia, Senor believes Iraqi reconstruction is going faster and better. He says the job is complicated by terrorist attacks that have killed scores of U.S. troops since combat ended, and by the dismal state in which Saddam left his economy.

Children have returned to school. Some phone lines are working again, and Iraq's first cellular network has just been launched. Satellite television, banned by Saddam, beams news from around the world into Iraqi homes. And 200 new newspapers compete for readers.

"If you had told anybody in March 2003 that 12 months from that point all this activity would be going on in Iraq ... people wouldn't have believed it," Senor said.

"You don't transform an economy that was devastated for 35 years in six months or nine months or 12 months. It's going to take time."

Othman said Iraqis' perceptions of their lot, and their visions of the future, depend much on where they come from. Those most oppressed under Saddam are willing to cut Iraq's new rulers far more slack.

"For people who were politicians or writers or journalists, it was hell under Saddam. Now it's much better, they are free at least," he said. "But for a simple citizen, they haven't seen much change. Security isn't guaranteed. Maybe he is unemployed. And the services, some are running and some aren't."

The war and occupation have reshaped the balance of power and the winners and losers see things in vastly different ways.

Kurds in northern Iraq, for whom Saddam was their worst nightmare, are by and large delighted. Shiite Muslims, long ruled by Saddam's Sunni minority, also hope for an end to their oppression.

Sunnis now find themselves on the outside, tarnished by their association with the former regime and fearful that they will be targeted for crimes of the past. Some have taken up arms against the Americans and against Shiites out of frustration and fear.

Shiites say their U.S. occupiers have done little to right the poverty they suffered under Saddam. Some dream of a clergy-ruled state modeled on neighboring Iran, while others dread it. All three major groups - Kurds, Sunnis, Shiites - have seen leaders murdered, and the killings feed distrust.

As the June 30 deadline for sovereignty approaches and the different groups jockey for influence, ethnic tensions cultivated under Saddam could easily boil over into widespread violence, many fear. Many see this month's bombing onslaught against Shiite pilgrims, in which more than 181 people died, as an attempt to fuel ethnic conflict.

"People were not divided like now. Now everybody hates each other," said Sajad Hussein, 22, selling Shiite cassettes and posters in a Baghdad marketplace. "I think civil war is coming."

U.N. envoy Lakhdar Brahimi warned Iraqi leaders last month that civil war was a real possibility if they didn't put the national interest ahead of their own.

In a society where opinions are often dictated from the shadows at gunpoint, it's often safest to blame everything on the Americans, and people frequently do.

It was the Americans who insisted that Iraq's future government represent all ethnic and religious groups; who have gone from village to village trying to plant the seeds of democracy; who have promoted women's participation in the process.

Yet many accuse the Americans of failing to prevent the ethnically motivated attacks, and of not doing enough to bring Iraqis together.

"Saddam created this division between the Sunnis and the Shiites, and the Americans deepened it," said Diar Mustafa Mohammed, a 39-year-old Kurd.

Coalition officials deny those charges, saying they are forging a historic new government based on representation for all. And they point out that the assassinations and attacks have not so far led to widespread ethnic violence.

Ridha, the pharmacist, should be immune to the ethnic tensions. His father is a Sunni Kurd, his mother a Shiite southerner. He married a woman from Kuwait, and recently converted from the Sunni to the Shiite faith.

But he sees little reason for hope.

He was overjoyed a year ago, saying he ran through the streets with a victory sign and offered tea and snacks to passing soldiers.

"There were problems between me and my friends," Ridha said. "They rejected the Americans, but I was happy."

But as time passed and little changed, he came to agree with the naysayers. He now carries a pistol in his belt, and he ate his lunch by a restaurant window so he could keep an eye on his car.

"We are going from bad to worse. There is chaos. There is no security. If you walk in a Baghdad street you see everything destroyed," he said. "This is very sad for us."

Abed, the tailor, looks at the future largely through the eyes of his first-born, a baby girl he pulled from the arms of his wife's battered corpse.

In a marketplace filled with bodies torn apart by shrapnel, Fatima was protected by her mother's body.

She was sickly and thin for most of the year because of unclean water and the lack of her mother's milk. Today, she's a smiling, chubby 18-month-old who has just taken her first baby steps.

And as she grows, Abed said, it will be in a nation that is finally free.

"When I look at the child I remember her mother. It has been a sad year," Abed said. "But it has also been a happy year, because we got rid of a tyrant."