The shopkeepers in Nablus, the West Bank's toughest town, are smiling for a change. But no one knows for how long.

Dubbed "the mountain of fire" by Palestinians for its part in the revolt against the British mandate during the 1930s, Nablus is usually known for its violent uprisings, choking Israeli clampdowns and prowling Palestinian gunmen extorting protection money.

It is difficult to reconcile that reputation with the reality on the streets today. The centre of town is filled with shoppers picking up everything from new trainers and perfumes to armloads of dates for Ramadan, the Muslim festival which began on Saturday.

Nablus now has its first cinema in more than 20 years, grandly called "Cinema City", which offers a diet of Hollywood blockbusters such as Transformers and Arabic romantic comedies, complete with cappuccinos and myriad flavours of popcorn.

Israel has eased its chokehold of army checkpoints around the city, particularly the one at Huwwara in the south. It was once one of the worst West Bank bottlenecks, with long queues and copious permits required. But now Israeli soldiers wave cars through with the minimum of fuss.

Store owners in Nablus's ancient casbah say sales are up 50 or even 100 per cent since the beginning of the year. Much of the upswing in trade can be attributed to the fact that, for the first time in eight years, Israel now allows its Arab citizens to drive into Nablus on a Saturday .

"It's a better feeling when you sell more," said Darwish Jarwan, whose family store sells toys, clothes and perfumes. "You are happier."

The reminders of unhappier times are all around. There are bullet holes on the steps of the shop and he had to fix the door three times over the past eight years after it was damaged during Israeli army operations.

The Israeli easing at certain checkpoints is part of Prime Minister Benjamin Netanyahu's effort to demonstrate he is serious about encouraging Palestinian economic improvement in order to build peace "from the bottom up". Israeli army officials credit the work of US-trained Palestinian Authority security forces, which have allowed them to lift the checkpoints.

The Israeli and PA moves have produced the most positive economic indicators for years, with the International Monetary Fund saying last month that growth could reach 7 per cent provided there was a more comprehensive easing of restrictions on Palestinian trade and movement.

But critics say Mr Netanyahu's approach is aimed at evading the broad political concessions needed to really defuse the Israeli-Palestinian powder keg. Nablus residents are themselves cautious, especially given the Jewish settlements that surround the town. Back at his shop, Mr Jarwan says the economic boost alone will not be enough to satisfy his countrymen.

"Buying and selling isn't everything," he explains. "We want our own Palestinian country and to get our freedom. If the settlements continue to go on like this, I'm sure there will be another explosion."

Nablus is known for its pastries, especially knafeh, a sweet made out of goats' cheese. The Palestinian Prime Minister, Salam Fayyad, was the first to sample the "largest knafeh in the world", which was prepared to draw attention to the city's revival and as a celebration of the new sense of security and relative normalcy.

But at the city's most revered bakery, al-Aksa Sweets, there was a sour after-taste as an unemployed teacher declared after finishing his helping: "The lifting of checkpoints is all theatre, nothing substantial, a show for the Americans and Europe. All of this is for a limited time."

Another resident stressed that Hamas, the Islamic resistance movement that swept municipal and legislative elections in Nablus in 2005 and 2006, is still popular, although that is not visible since its leaders are in jail and its activities suppressed.

At the new Cinema City, the owner's son, Farouk al-Masri, was also hesitant about painting too rosy a picture. "Things are better," he says. "There is more security, police are keeping law and order, there are less Israeli incursions and less restrictions at checkpoints. The great number of Palestinians from Israel who are coming have breathed life into the city. We've been living in this fear, being isolated and not being able to go in and out but now there is more room to move." But he added: "It's all very flimsy. We saw it during the years of the Oslo agreement. There were signs of great things ahead and it all collapsed in the blink of an eye."

The cinema is often cited as a symbol of the new Nablus, although at £4 a seat, tickets are beyond the reach of many residents. Nonetheless, the current bill, an Egyptian romantic comedy called Omar and Salma has sold out every night since it opened 10 days ago.

"They love comedy here," said Mr al-Masri. "We had one movie that was very bloody. People didn't accept it and only a few came to see it. Blood – we've had enough of that."