Cautious optimism is stirring in Basra as it shakes off almost five years of British control marked by insecurity and crumbling public services.

Businessmen still live in fear of kidnap, musicians have been forced to flee and women cover their heads to avoid persecution. But the people of this oil-rich port city hope that Iraqi police and army commanders will bring stability, prosperity and increasing independence from central government in Baghdad.

Major-General Jalil Khalaf, the new police commander in Basra, has made it clear that this will be far from easy. “They left me militia, they left me gangsters and they left me all the troubles in the world,” he said of the hand-over.

Yousif Nassar, one of Basra’s most famous composers, is disappointed at the legacy left by British troops. “The British Forces created chaos and failed to deliver what they promised,” Mr Nassar, 54, said, referring to insecurity coupled with a lack of basic services such as water and electricity. “That’s why we are now optimistic that the Iraqi forces this time might be able to deliver something,” he said.

A wave of religious extremism that swept through Basra since the 2003 invasion has damaged artistic freedom, forcing theatres to close and musicians to move away. Just a few days ago an armed gang beat up a young singer at his house and warned him not to perform again after the man sang at a festival.

“Attacks like this prompted more than 85 per cent of musicians to leave the city, while the 15 per cent who remain have been forced to close their music shops,” Mr Nassar said.

Hatem Al-Bachaari has also suffered at the hands of the mafia-style gangs that hold prominent people to ransom, acting with impunity because they have infiltrated the police as well. “I have survived three kidnap attempts since the war,” said Mr Bachaari, who heads the Iraqi Economic Development Group, a collection of investors.

“Basra is still not an ideal place for investing and business development, but the recent changes in the security forces have given us some hope,” Mr Bachaari added. Nouri al-Maliki, the Prime Minister, this year put the senior Iraqi commander General Mohan al-Firaiji in charge of security in Basra and made Major-General Abdul-Jelil Khalaf head of the police force. Both men have won the respect of British officers by tackling corruption and infiltration in the security forces head-on, despite the inherent risks.

A conflict surrounding the governor of Basra, Mohammed al-Waili, that hampered the effectiveness of the provincial council, has also been resolved, raising the possibility of a renewed focus on economic development and reconstruction – areas viewed as crucial by Gordon Brown.

Munathil Abid Khunjer, head of the council’s economic development committee, believes that the handover will signal improving security and should encourage investors.

Britain is also involved in setting up initiatives to encourage investment, such as the Basra Development Fund.

However, Mr Khunjer said that central government was obstructing progress. “I think the best option is to announce [Basra] as a separate region to give it more authority and free it from bureaucracy of the central Government,” he said.

Despite being optimistic about the city’s long-term prospects, Mr Khunjer predicted some instability between opposing political factions.

Brigadier-General Abdul Hamid, deputy chief of police, also blamed mistakes by the British in the initial establishment of the security forces – such as recruiting people without checking their background – for problems such as corruption and incompetence in the police force.

Last night Ayman al-Zawahiri, Al-Qaeda’s second in command, said that the handover was proof the insurgents had gained the upper hand. “Reports from Iraq point to the increasing power of the mujahidin,” he said in a video released on the internet. “And the decision of the British to flee is sufficient [proof of this].”

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