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CIUDAD JUAREZ, Mexico (Reuters) - Inside a notorious Mexican prison where armed convicts used to roam freely, selling drugs and deciding who was allowed in, the state is in control again. Prisoners are back in their cells and the once overcrowded complex sparkles with cleanliness.
But outside on the dusty streets of Ciudad Juarez, store owners lock themselves behind their doors, fearful of police and carefully vetting customers to avoid becoming the next victims of still rampant crime.
For four years, the city on the border with Texas was convulsed by daily slaughter, becoming the murder capital of the world and a shocking illustration of the Mexican government's failure to contain violence among warring drug cartels.
Once best known as a party town for Americans hopping across the border for cheap thrills, Ciudad Juarez fell into chaos with about one in every six of the 60,000 victims of Mexico's bloody drug war over the last six years dying here.
This year, though, the violence in Ciudad Juarez has fallen dramatically, prompting political leaders to hold up the city as a symbol of progress and offering hope to Mexico's incoming president, Enrique Pena Nieto, in the fight against crime.
"It's a completely different city now," said mayor Hector Murguia, who took office for a second time in October 2010, just as the violence in Ciudad Juarez reached its peak.
Homicides and kidnappings fell by more than 60 percent from last year in the first 10 months of 2012, and extortion was down 12 percent, city data shows. In October, Ciudad Juarez had just 28 murders, down from 253 in the same month in 2010.
The government of Ciudad Juarez's home state of Chihuahua has hailed the results as proof that tougher policing works, claiming a new record for catching criminals in Mexico. It has also transferred hundreds of gang members from local prisons to jails elsewhere in Mexico, dismantling power structures that continued to direct crime from behind bars.
A number of drug war experts say security has also improved because the Sinaloa Cartel of Joaquin "Shorty" Guzman now has a firm hold on the city after squeezing out the Juarez Cartel, for long aligned with the local police. Senior government officials deny this, and one said the gangs are likely biding their time to see what Pena Nieto does after he takes office on December 1.
For all the success in reducing violence, drug trafficking is still flourishing; police are widely suspected of colluding with the cartels; reports of human rights abuses are rife; and many businesses pay a de facto tax to the gangs.
National police data shows incidence of property-related crime - which includes extortion, fraud and looting - is heading for its worst year in Chihuahua since President Felipe Calderon took office in December 2006. His term has been dominated by the drug war and he sent more than 10,000 soldiers and federal police to Ciudad Juarez when violence erupted there in 2008.
U.S. demand continues to fuel the drug trade, and a U.S. congressional report this month said Mexican cartels still had "firm control" of border smuggling routes. Mexican consultancy Risk Evaluation says the amount of cocaine and marijuana smuggled across the U.S. frontier was up at least 20 percent this year compared to 2010, and methamphetamine by 40 percent.
Instead of bringing peace, the security buildup in Ciudad Juarez spawned more chaos. Corrupt soldiers and police were soon infected by the criminal malaise sucking the life out of the city, extorting, kidnapping and killing at will.
"Unfortunately, there were people wearing federal police badges and army insignia who only came here to make money," said municipal police officer Roberto Hernandez, 37.
By the end of 2011, most of the army and federal police had been pulled out. To regain the upper hand, Chihuahua beefed up intelligence gathering and investigations and also introduced tougher sentences for criminals.
State governor Cesar Duarte said since he took office two years ago, Chihuahua has executed a record 98 percent of arrest warrants issued and put 95 percent of suspects on trial.
"Where the news was once about deaths, deaths, and more deaths, today it's about arrests, arrests, arrests and convictions," he told Reuters. His government has put 8,000 people behind bars and moved 2,000 criminals to other jails around Mexico to break the power of prison networks, he said.
Inside Ciudad Juarez's main prison, walkways and yards once filled with convicts in civilian clothes chatting in the sun are now empty. When prisoners emerge, all wear regulation gray.
"A year ago you couldn't have been here," said Chihuahua's head of social re-integration, Gonzalo Diaz. "The prisoners had the keys to the cells and they were in charge. It was the most dangerous prison in the world."
Regardless of improvements on the inside, the hold exercised by criminals on the city outside is palpable.
One recent Saturday afternoon, the main road through the center of Ciudad Juarez was almost deserted.
On block after block on the 16 de Septiembre avenue, nearly half the businesses were closed, abandoned or burned out. Many of the stores that were open had their doors locked, admitting strangers only after they were satisfied they meant no harm.
"Everyone who is open here is paying extortion," said a man in his 30s working in a forlorn hairdressing salon on the street. "If you don't pay, the place burns down."
That Saturday the salon had four clients in 4-1/2 hours. Before the violence flared up in Ciudad Juarez it would have had about 60, said the man, who asked to remain anonymous.
Of some two dozen people working in the city Reuters spoke to about extortion, nearly all said their business paid it or that they knew of others who did - or they declined to comment.
They said payments vary from 100-150 pesos ($7.70-$11.50) a week for taxi drivers to 5,000 pesos at a mechanic's workshop employing three and 6,000 pesos at a funeral home with 15 staff.
A bus driver said operators of 40-seat vehicles had to pay as much as 5,000 pesos a month for a single bus. Children as young as 12 have been used to collect extortion, police say.
For some residents of Ciudad Juarez, paying extortion has even become a token of security in areas where the gangs rule.
"A guy in our neighborhood who ran a store got so fed up with kids stealing stuff, he eventually said 'Who do I have to pay extortion to around here?' Once he started paying, the problems stopped," said the manager of a funeral home.
The torrent of robberies, shootouts and disappearances have drained the city's economy, forcing many people out. A study by a local university estimated nearly 240,000 of the city's 1.3 million people had left by the end of 2011.
In 2006, Ciudad Juarez accounted for about 1.9 percent of Mexican economic output, according to studies by bank Banamex. By the end of 2010 its share had fallen to 1.2 percent.
"Juarez is exhausted by gore, poverty, terror and business flight," said Charles Bowden, a U.S. author of various books on the city. "This, coupled with a population flight, means there are fewer people left to kill. All the people who refused to pay extortion are dead, and the living have taken note."
Many streets in the Riberas del Bravo district are largely deserted following months of fighting and gunfire.
Rows of neat little homes stand gutted, stripped of every item of value but their stone frames, the walls plastered with graffiti and entrances littered with debris and weeds. On one street in the area, only 12 of 39 houses had not been abandoned.
"You feel very lonely," said Antonio, 38, a beautician who described regular battles between gangs on the street and seeing a man beaten to death with rocks outside his front door last year. Since the spring it has been mostly quiet, he said.
Locals say the city is much safer since the army and federal police withdrew, but corruption inside the local police remains a problem. "Very few of us hang out together after work because of the fear, the paranoia," said police officer Hernandez.
For Hugo Almada, an academic who sits on a Ciudad Juarez security panel made up of local officials and civilians, the violence had less to do with drug trafficking itself and more to do with splits "within the state" over who controlled the money.
"What we saw was police, the military, politicians, entrepreneurs, drug traffickers and killers on the one side - and another group of the same people on the other," he said. ($1 = 13.0292 Mexican pesos)
Editing by Kieran Murray and Mohammad Zargham