The forest of cranes over Potsdamer Platz signals the scale of recent changes in Berlin. But a little to the north and east, the area around Oranienburger Strasse and Rosenthaler Strasse in what was formerly East Berlin has been undergoing a less ostentatious yet more intriguing transformation. The Scheunenviertel (Stable Quarter) is both Berlin's newest hot spot and one of its oldest neighborhoods. Founded in the 17th century outside the medieval city walls, it was historically Berlin's Jewish quarter. But while Allied bombing raids and the Red Army's assault leveled other districts in Berlin, many of the Scheunenviertel's old structures survived. These days they're being reincarnated as bars, restaurants, and galleries.

Left to deteriorate for decades after World War II and slated for demolition under Communism, this neighborhood of tangled narrow streets was saved by the fall of the wall. In the early 1990's, young artists and leather-clad Alternativen blazed a trail back into the area. Tacheles, the hulking alternative-arts beehive near Oranienburger Tor (53- 56 Oranienburger Str.; 49-30/282-6185), still teems with them. The building is what remains of a grand 1909 shopping arcade, abandoned for decades until artists moved in and kitted it out with theaters, galleries, studios, a dingy basement disco, and a scrap-metal sculpture garden. The graffiti-strewn exterior may look forbidding, but surly service in the ground-floor café is the worst you can expect inside. Tacheles is part of the Yiddish expression for "talking turkey," and the occupants are currently doing precisely that with a city government keen on selling the property to a developer. Negotiations are snarled, and Tacheles looks unlikely to survive.

But local authorities have generally been eager to lure cultural tenants to the Scheunenviertel. The area art scene currently comprises some 40 outposts, many of them strung along and around the art mile of Auguststrasse. Galerie Wohnmaschine (34- 36 Tucholskystr.; 49-30/3087- 2015) was the area's first commercial gallery. The name refers to Le Corbusier's machine á habiter—appropriate given that the small venue, when it first opened in 1988, was also the dwelling of owner Friedrich Loock. He now represents artists from both east and west Germany, mostly of a Conceptual or Minimalist bent, and describes his space as "a mirror for Berlin."

Galerie Eigen & Art (26 Auguststr.; 49-30/280-6605) is an appealingly shabby space exhibiting artists from eastern Germany and other formerly Communist places. Its director, Gerd Harry Lybke, started out in 1983 at his home in Leipzig, showcasing "unofficial" art at the height of the Cold War. Among those exhibited here is the Leipzig-born painter Neo Rauch, whose abstract canvases use imagery derived from early-20th-century German book illustrations to arrive at an east German affiliate of Pop. The focus at the lean, austere Contemporary Fine Arts (21 Sophienstr.; 49-30/283-6580) is recent work from international artists, most of them British.

Established Charlottenburg galleries such as Aedes and Bodo Niemann are opening spaces in the east, too, many of them in the Hackesche Höfe. This interlocking series of courtyards (40- 41 Rosenthaler Str.), built in 1906 with Art Nouveau details, has been partially restored from socialist shabbiness to its original tiled blue splendor. Filled with galleries and shops, cafés and theaters, it is now the commercial centerpiece of the Scheunenviertel.

Among the places not to miss there: Schmuckwerk (49-30/281-3114), which sells chunky jewelry fashioned from silver, gold, and semi-precious stones by owner Sabine Dubbers. A few doors down, the Berlin designer Lisa D. (49-30/282-9061) sells dresses in simple, classic shapes with witty juxtapositions of fabric.

Come back at night for a show at the Chamäleon Variété (49-30/282-7118), the city's most prestigious venue for cabaret and variety shows, mixing comedy, music, and acrobatics.

The last courtyard in the Höfe emerges onto Sophienstrasse, made especially atmospheric at night by its old wrought-iron street lamps. Johanna Petzoldt (9 Sophienstrasse; 49-30/ 282-6754) is a store dedicated to crafts from the Erzgebirg region— delicate wooden toys and whole scenes fitted into matchboxes.

If Petzoldt represents German tradition, Tools & Gallery (34- 35 Rosenthaler Str.; 49-30/2859-9343) is typical of the Scheunenviertel's new international slant. Here men's fashions, mostly from Kenzo and Caramelo, strut a fine line between relaxed formal and elegant casual.

The cavernous Restaurant Hackescher Hof (40- 41 Rosenthaler Str.; 49-30/285-293; dinner for two $40) is a decent spot for a traditional Berlin breakfast of assorted rolls, cheeses, and cold cuts, while you watch street punks, housewives, and fashionable "Wessies" cross the intersection outside. A self-consciously literary crowd hangs out at Ici Café (61 Auguststrasse; 49-30/281-4064); carry something by Camus.

One of the few eastern restaurants capable of luring the glitterati from the other side of town is Maxwell (22 Bergstr.; 49-30/280-7121; dinner for two $120), a confident, see-and-be-seen establishment serving German nouvelle cuisine— venison in rosemary sauce, guinea fowl confit with risotto— as well as French. It has a lovely picture window, and an art collection containing a 1995 drawing by Damien Hirst.

A citywide clientele also gathers at the understated Cantamaggio (4 Alte Schönhauser Str.; 49-30/283-1895; dinner for two $66). Weeknights this place assumes a theatrical mood, as audiences and thespians alike drift by after the theater to linger over delicate contemporary Italian food.

By mid-evening, Scheunenviertel bars are beginning to gleam. Hackbarth's (49A Auguststr.; 49-30/282-7706) is a favorite of young artists, a heaving, L-shaped space around a simple wooden bar. The Pip's (84 Auguststr.; 49-30/282-4512) opened last November with a menu of cocktails and soft soul music. The postmodern deployment of lava lamps and plasma balls is surprisingly relaxing, as are the plush barstools. Café Silberstein (27 Oranienburger Str.; 49-30/281-2095) is as ramshackle and rowdy as the street outside. Don't get too attached to the metal chair you're sitting on there: customers can buy it out from under you.

A few doors away is the 1866 New Synagogue (30 Oranienburger Str.; 49-30/280-1250), with its glistening Moorish dome. Sacked by the Nazis in 1938 and further damaged by Allied bombs, it has been restored, reopened in 1995, and remains the area's greatest landmark. The building is no longer a place of worship, but it displays a riveting documentary exhibit about the Jewish life that once filled this neighborhood. Over on Grosse Hamburger Strasse, the Monbijoupark covers the former site of a Jewish senior citizens' home, used in the 1940's as a collection point for the deportation of Jews to concentration camps. It's yet another reminder that for all their current vitality, these streets hold a sense of irretrievable loss.

DAVE RIMMER is the editor of the Time Out Guide Berlin.