Pessimism is a steady companion these days for advocates of Middle East peace. A lame-duck Israeli government is negotiating with a weak Palestinian leadership in the twilight of an unpopular American administration. Few forecast success.

But a quiet revolution is stirring here in this city, once a byword for the extremes of violence between Israelis and Palestinians. In 2002, in response to a wave of suicide bombers from Jenin, Israeli tanks leveled entire neighborhoods.

From that rubble, now newly trained and equipped Palestinian security officials have restored order. Israeli soldiers have pulled back from bases and are in close touch with their Palestinian colleagues. Civilians are planning economic cooperation ? an industrial zone to provide thousands of jobs, mostly to Palestinians, and another involving organic produce grown by Palestinians and marketed in Europe by Israelis. Ministers from both governments have been visiting regularly, often joined by top international officials. Israeli Arabs are playing a key role.

The aim is to stand conventional wisdom on its head. Instead of a shaky negotiated peace treaty imposing coexistence from the top down, a bottom-up set of relationships that lock the two societies together should, proponents argue, lead to a real two-state solution.

?We got a clear American message that the Palestinian state will start from Jenin,? asserted Col. Radi Asideh, the deputy commander of the Palestinian security forces here who have recently received new Land Rovers and AK-47 assault rifles. ?The plan is to have a security model that can then be implemented all over Palestine.?

Those may sound like the hopeful words of a credulous officer. But here is Gen. James L. Jones, special American envoy to the region in an interview this week after visiting Jenin: ?I see this as a kind of dress rehearsal for statehood, a crucible where the two sides can prove things to each other.?

And Ehud Barak, Israel?s defense minister, in an interview in his Tel Aviv office, said: ?So far, Jenin is a great success. The Palestinian police have created a different mood there. We need to see money being poured into projects now to keep the momentum going. If done right, we think this could become an example.?

As one Western official involved in the plan noted, Israeli defense officials do not make a habit of speaking well of Palestinian police, so Mr. Barak?s words are telling. Still, Mr. Barak?s last point is also crucial because, unsurprisingly, not everyone agrees on what it means to do it right. Each side in the triangle ? Israelis, Palestinians, international donors and facilitators ? argues that it has done its part but that things are moving too slowly because of the others. Israel says Palestinian forces still do not deal with terrorists and so its forces must continue night incursions. Palestinians worry that the focus on Jenin will take away from the broader issues that need to be solved, like Jerusalem and refugees. The likelihood of failure still far outweighs that of success.

The choice of Jenin as a model might seem strange given the level of violence that emanated from here in the years of the second Palestinian intifada, or uprising. Since then, the city and region of Jenin have been severely economically depressed and chaotic.

Until late last year, for example, armed militia men used the hospital as a dormitory. Gunfire in the streets was common. One day, Colonel Asideh recounted, when militia paychecks failed to arrive, gunmen pumped bullets into four of the local ATMs, causing hundreds of thousands of dollars of damage.

Today, such men have given up their arms and the police walk the beat in this town. The hospital has been refurbished with American aid. Shops downtown stay open late. People feel they can breathe.

Jenin, officials on all sides say, offers many advantages for a pilot project, an idea arrived at by American and European officials in February when they sought ways to build peace on the ground.

First, they said, Hamas, the main Palestinian militant opposition in the West Bank, is relatively weak in Jenin. Second, after the evacuation of four Israeli settlements in the region in 2005, the area is essentially free of settlers, a major source of friction elsewhere. Third, the barrier that Israel has been building causes little friction in this area because it is right on the boundary between Israel and the West Bank, not over it so there is little territorial dispute.

There is also a fourth reason. Gilboa, the Israeli region that abuts Jenin, is an unusual and unusually well-suited neighbor. Small and rural with 30,000 people, it is 40 percent Arab and 60 percent Jewish and the inhabitants have worked assiduously to create their own kind of model ? of Arab-Jewish coexistence in Israel.

An example was on display last month when high school students in Gilboa took part in what may be the only one of its kind in the world ? the finals for the Bible-Koran contest. Twelve teams, each made up of one Jew and one Arab, were asked questions in both Hebrew and Arabic about the holy books. A mixed team of Jewish and Muslim teachers acted as judges. An Israeli Arab was the master of ceremonies.

Isaac Herzog, Israel?s minister of social welfare, was on hand and told the audience that Gilboa was a model for Israel, that every Israeli Jew should learn the Koran, that equality of opportunity should be the norm.

The head of the Gilboa regional council, Daniel Atar, is a Jew and his deputy, Eid Salem, is an Arab. Together they have built a warm relationship with the Palestinian governor of the Jenin area, Qadoura Moussa. The three meet frequently to formulate plans for economic cooperation in agriculture and commerce. Together, they have visited the French-German border area and Switzerland, seeking models of coexistence.

?There are two kinds of peace,? Mr. Atar said one recent afternoon in his office with Mr. Salem at his side. ?There is the one on a piece of paper that doesn?t stand up to any test and there is the one built from the bottom up. That is the one we are hoping to build. It is increasingly clear that if Israeli Jews cannot figure out how to have good relations with Israeli Arabs, there won?t be peace beyond the borders, either. We have a choice in Israel of making peace or living in a bunker.?

One result of the discussions among the three leaders is a decision by the Israeli authorities to allow some Israeli Arabs into Jenin on a daily basis for the first time since the intifada. It has been a delicate move made with little fanfare because in principle it is illegal to allow certain Israeli citizens to do something others may not and also because movement across the boundary invites the possibility of security breaches.

It is delicate for another reason. In recent years, Israeli Jews have grown worried that among the 1.3 million Arabs who are Israeli citizens, there is a growing radicalization and identification with the Palestinian national cause and militant Islam. Increasing their contact with the West Bank could add to those concerns.

But Israeli Arabs have relatives here and want to do business here, and the Israeli authorities say they want to encourage that as a means of helping the Palestinian economy. If Israeli Arabs are permitted to do that in large numbers, that could represent an important change in their status in the eyes of Israeli Jews ? from potential fifth column to bridge builder.

There are small signs of it already. Inside the Jenin refugee camp, a tough neighborhood of 16,000 inhabitants that is inside the city of Jenin, Fadi Abu Hijab, 27, owns a new sewing workshop with half a dozen employees. They make clothes on order from shops in Tel Aviv, he said, and Israeli Arabs are the brokers who come to deliver the material and pick up the finished products.

In addition, the university here has 80 Israeli Arab students and is working to attract several hundred more. The Israeli authorities have taken other steps ? removing key checkpoints so that movement around Jenin is easier, granting V.I.P. checkpoint passes to about 1,500 Palestinian officials and businessmen, issuing work visas to some here, and agreeing on the building of new police stations, courthouses, schools and jails.

For anyone who remembers the Gilboa-Jenin boundary area a decade ago, however, all of the incipient changes seem minor. Until the 2000 uprising, thousands of Israelis ? Jews and Arabs ? shopped here regularly in their cars. Thousands of Palestinians from here worked in Israel. The industrial zone now being planned by Tony Blair ? the international community?s envoy to build Palestinian institutions ? and talked about as a major breakthrough, was supposed to be built then.

Today the main crossing point, then the site of a sprawling market, is a maze of security towers and checkpoints. Israeli soldiers refrain from cruising Jenin by day but still carry out occasional night raids and maintain overall security control of the region. And while Israeli Arabs are now being let in, they may not yet bring cars, greatly limiting the appeal of the trip and the shopping.

There are other concerns. The Palestinians have asked to base their newly trained battalion for Jenin in an abandoned Israeli settlement, a good spot in terms of location and infrastructure. But Israeli officials are worried about how it will play in Israel and have so far said no.

Israeli security officials say their Palestinian colleagues are good at law and order but not at stopping terrorist groups. They say that Islamic Jihad used to be strong here and is no longer because Israel spent years destroying its infrastructure and killing its militants, setting the stage for the Palestinian security takeover. But if they relax their vigilance, the Israelis say, the situation will deteriorate. Early on Wednesday morning, for example, Israeli soldiers and security men raided a home in Jenin and detonated a 30-pound pipe bomb.

The Palestinians complain that they are often urged to arrest someone just because he wears a beard. They add that as long as they are seen as puppets of the Israelis, the project is doomed. The key is for Palestinian security officials to be seen as agents of state building. Then the population will cooperate. This requires the kind of discretion that the Israeli Army has not been known for.

?The intifada turned them into enemies in one day,? Mr. Blair said in an interview. ?Now we are trying to recreate a sense of mutual confidence after seven years. It is a very slow process. But what is happening in Gilboa and Jenin is exactly the direction we would like to go.?