In the immediate aftermath of 11 September, visitor numbers plummeted, driven down by a combination of security fears and economic stringency. The regional tourism industry is starting to show that it will be able to emulate its success in bouncing back from the 1990-91 Gulf war and the 1997 Luxor massacre - when, after relatively brief interruptions, visitors returned in greater numbers than before.

In its 2002 annual report on hotels in the region, London-based HVS International charts a year-on-year decline of 4 per cent in hotel occupancy in 2001, with most of the damage occurring in the fourth quarter. It says the fall in foreign tourism has been partly offset by the large growth in intra-regional tourism after 11 September, as Arabs stayed away from the US and Europe, which were perceived as increasingly anti-Arab. The report also highlights the continued aggression with which regional companies are expanding into the sector with plans for large tourism and leisure projects. The message is that 11 September and the global economic downturn have caused a short-term reverse in an otherwise healthy market that will reap profits for many years to come.

That view reflects international trends, where a slowdown was much in evidence well before 11 September, as the US economy began to falter. In the last quarter of 2001, tourist arrivals worldwide fell by 11 per cent year-on-year, according to HVS. In the Middle East the fall in that period was 30 per cent. But historical figures show that while global tourism arrivals grew by 15.4 per cent over the period 1995-2001, Middle Eastern growth achieved a spectacular increase of 37.7 per cent - clearly showing that its unique mix of culture, scenery and warm climate is a real hit with visitors.

Tourism is becoming a focus for economic diversification in the Middle East, as Gulf economies strive to reduce dependence on oil revenues, and non-Gulf countries seek to make the most out of their cultural wealth. Even Saudi Arabia, a country that has no real tradition of tourism, is attempting to develop the sector by concentrating on such uncontroversial moves as capitalising on increased pilgrimage numbers and promoting itself as a destination for other Gulf nationals.

Complex

But signs coming out of the region give a mixed prognosis for 2002, with some figures pointing to a full recovery and others indicating that the region is losing out to cheaper destinations with more secure reputations. The Middle East is, after all, a complex market, with distinct, geographically determined tourism sectors. The Gulf - mainly driven by business tourism and the new high-class holiday image of Dubai - is a very different proposition to the traditional combination of ancient ruins and sunny beaches offered in Egypt, Jordan and North Africa.

This complexity, while better understood in nearby Europe, tends to be less obvious to the long-haul markets of the US and Far East, where bookings for Middle East holidays have been hardest hit. The problem is that while visitors that know the Middle East can distinguish between the few risk areas and the rest, novices tend to read riots in Gaza as crisis in Cairo. 'For people from afar, it's the whole Middle East that's got a problem - they don't discriminate,' says Andy Duncan, tourism head at UK consultant Pannell Kerr Forster (PKF). 'The long-haul market tends to throw its arms up in the air and say it's not worth going anywhere near the Middle East.'

Political factors can work both ways, says Elie Younes of HVS. 'Because of the political events, there is actually increased awareness of the region in general - leading more people to consider the safe parts for a holiday,' he says. 'Look at the record tourist figures for 1992 and 1999. I think a lot of people are hopeful of another bumper year in 2003.'

The trend of a sharp recovery is also exaggerated because a large number of people planning a trip to the region would postpone rather than cancel it, yielding a far higher increase when the dust settles.

Egypt, the largest tourism market in the Middle East, was badly hit by regional instability in 2001, with Cairo occupancy rates falling by more than 15 per cent according to PKF, but is now showing a strong rebound. Tourism Minister Mamdouh al-Beltagui said on 17 July that the sector had entirely recovered from 11 September, with June tourist figures approximately the same as those in June 2001. However, arrivals over the first half of 2002 were about 12.3 per cent down on the same period in the previous year. The most recent current account figures issued by the Central Bank of Egypt show a 38 per cent increase in tourism receipts in the first quarter of 2002 to $810 million from $587 million in the fourth quarter of last year. In July-September 2001, tourism income was $1,146 million.

Egypt's strong return can provide a lesson for others, says PKF's Duncan. 'Egypt has been quite clever by making sure it publicises itself as having strong security, by selling itself as a Red Sea, rather than Middle East, destination,' he says. 'Other countries have now got to market themselves - to show they are limiting the security risks - and put out promotions and adverts to get their market back.'

Dubai - and to a lesser extent other Gulf destinations - has found the merits of proactive publicity similarly effective. A constant barrage of advertisements billing the emirate as a beach paradise with excellent facilities and luxurious hotels has been bolstered by its landmark tourism developments, numerous festivals, and by the international reputation enjoyed by Dubai-based Emirates airline.

In addition, the Gulf has developed its reputation for specialised forms of tourism such as business and sports - developing conference facilities and new stadiums. As such, the Gulf's image to some extent protects it against political fears, but makes it more vulnerable to the economic climate than its less upmarket regional competitors. Room occupancy in Dubai fell by only 4 per cent in 2001 and Muscat rates actually grew by 11.5 per cent, says PKF.

There has been a much-vaunted increase in inter-Arab tourism - mainly propelled by the fears of many in the region of hostility towards them in the West. Stories of racist attacks directed against Muslims have been very prominent in the Arab press, pushing these anxieties to the fore. However, the increase, while welcome, is hardly enough to offset the sharp decrease in Western visitors - particularly as they tend to spend more freely.

Despite the tough climate, the signs are that regional sentiment is still bullish. The wave of hotel and tourism development projects across the region shows no sign of slowing down, with HVS pointing to the rapid expansion programmes of Western and Far Eastern leisure groups in addition to an increasing number of local companies. Much of the new investment reflects the increased liquidity in the Gulf based on higher oil prices and the promise of a previously underexploited sector.

However, there are more clouds on the horizon. The continued political strife in the Palestinian areas will detract from regional tours - especially those based on Christian pilgrimage - as well as providing a backdrop of perceived violence to all Middle Eastern destinations. More importantly, a US military assault on Iraq would severely militate against Middle East tourism receipts for the duration of the campaign, while a continued poor Western economic climate will impinge on the budgets of potential visitors who will be more likely to holiday at home - or not at all.