High tech. Options. Start up. Internet. Venture capital. Peace.

Those were the words on everyone's lips in Tel Aviv, in September 2000. It seemed that nearly every other person I met had founded or was working for a high tech start up, or was benefitting from the trickle-down effect. Everyone knew that there were three high-tech capitals in the world: Silicon Valley, Tel Aviv and Bangalore. Shiny new office towers had been built in clusters called "industrial parks" all over central Israel - in Ramat Hachayal, Herzliya, Ra'anana. Entry-level programmers could command the same salary as a physician practicing in the public health care system, as well as a car, a mobile phone and often a laptop to boot.

Beautiful people wearing expensive sunglasses posed at outdoor cafes, drinking Illy coffee and talking on their late-model mobile phones, greeting their friends with enthusiastic kisses on each cheek. The Max Mara shop at the upscale Gan Ha'Ir (City Garden) shopping complex was full of customers, and luxury apartment buildings were being built all over central Israel. An interior designer friend told me in an incredulous tone that many purchasers of new apartments were spending up to $50,000 to replace the standard ceramic tile floors with imported parquet.

When I left Israel in the mid-1980s, there was one state-run - and very boring - television station. It could take years to get a telephone line installed (apartment rental listings were divided into "with phone" and "without phone" columns). There was one shopping mall in the whole country - the Dizengoff Centre. There was runaway inflation that ate up the foreign exchange value of salaries, which were low to begin with, and the selection of imported goods was small and terribly expensive. Very few people had air conditioning at home, not only because the units were expensive, but also because they drove the electricity bills to a prohibitive level. The coffee was not great, either. With the exception of a small, wealthy elite, most people lived modestly. Regular travel abroad was not taken for granted, as it is today for most, and local tastes in food and entertainment tended to reflect that fact. Israel was fun and charming, but it was provincial.

But all that had changed during the 1990s. Now there was cable television, air conditioning, imported Italian coffee, rapid Internet access, disposable income, affordable weekend travel packages to Europe, excellent theatre, film and music (literature was always good), Club Med and sushi restaurants. The good life had, for many, arrived. There was no need to seek it abroad anymore, and in fact the vast majority of my Israeli friends from New York, many of whom had lived abroad for a decade or more, had come home.

The sense of satisfaction was vey much connected to the nearly universal certainty that soon - very soon - there would be peace between Israel and all her neighbours. That we were accepted, at last. The borders would be open, and there would be business cooperation that would make the whole region prosperous. Fifty-two years of conflict were over, everyone thought, and at last Israel had become a normal, Western nation.

I called my friend M., a gay lawyer I'd last seen at a party in the East Village two years previously, who was living in Jerusalem. He told me enthusiastically that he'd recently formed a partnership with a Palestinian attorney in Ramallah. Come visit us at our office! he said. We'll take you out for lunch at a great restaurant in Ramallah. You can meet my partner's family.

My friend A., a successful diamond manufacturer, had recently moved his factory from Antwerp to the diamond district in Ramat Gan. His wife had just given birth to their second child, and they were living in a posh new North Tel Aviv apartment complex with a doorman and a swimming pool. Their neighbour was the Jordanian ambassador. Life here is great! he said. Last night I was sitting with a friend at an outdoor cafe by the beach in Herzliya Pituach, having a beer, watching all the gorgeous women, and I said, Man, this is a great country. The weather's gorgeous, there are lots of jobs, soon we'll be able to drive to Beirut and Damascus, it's like living in the South of France. You should definitely stay. Come over for dinner tonight - I'll pick you up and bring you back. And then, putting on a fake Israeli accent, he said, Lisa, welcome to the holy land.

Another Israeli couple I'd known in New York invited me to their newborn daughter's "brita" (party celebrating the naming of a girl) at their home in Savyon, a wealthy suburb of tree-lined streets and large private homes. When I'd known them in New York, he was studying for his MBA while working at the Israeli consulate, and she was studying industrial design at a well-known Manhattan college. Since then, he had risen to director of a well-known bank that specialized in high tech investment funding, and she had become a mother of leisure who had two Filipinas to help care for her three children and keep her house clean. The brita was extremely ostentatious, with a mini-playground set up for the children in the vast garden, a DJ, black-clad waiters and masses of catered fusion food for the 200 well-heeled guests. I wandered around with my glass of white wine, taking it all in. Five years ago these friends had been a young, struggling couple living in a tiny New York apartment. Now they were uber yuppies.

Everywhere I went, I was showered with warmth and hospitality. Acquaintances I hadn't spoken to in years responded warmly to my phone calls, invited me for dinner, asked whether I needed a place to stay, offered to help find me a job. My friend Anat, whom I hadn't seen in nearly three years, told me she was going to South America for three weeks, gave me the keys to her apartment, and told me to make myself at home while she was away. The day before Anat returned from her vacation, a guy I'd met just a week previously at a mutual friend's home told me he was going to India for a month, and I could have his apartment while he was gone. When I offered to pay his rent, he brushed the suggestion aside and said he'd been planning to leave the apartment empty, so I might as well enjoy it.

One night, soon after my arrival, my friend Gal took me for a ride on his moped along the Tel Aviv beachfront. It was a typically hot, sultry, mid-September night, and the humid breeze smelled like baked dust, sea water and diesel fuel. Gal kept twisting around to shout out the names of various landmarks as we roared along ("that's where you get the best homemade Sicilian ice cream in Israel"; "that's the beach where musicians get together on Fridays at sunset to jam") when suddenly I saw something that really caught my interest. Coming towards us from the opposite direction was a sleek new gray Jaguar with Amman license plates. The driver was wearing a double-breasted blue blazer with an ascot tucked into the open collar of his shirt, and his female passenger had "big hair" and carefully-applied red lipstick.

I rapped Gal's helmet with my knuckles and shouted into his ear, "Did you see that?! That was a car from Jordan!"

"Oh yeah," he shouted nonchalantly, "Rich Jordanians drive over all the time. They stay at the Dan Panorama [a five-star hotel] and go shopping at the new mall in Ramat Aviv."

This is it! I said to myself. The New Middle East has arrived. And I'm staying.

Soon after that I landed a job, through a friend of a friend who was the CTO of a brand-new start up company that had just closed $5.5 million in initial funding. The job would start about a month later. He offered me a salary that was competitive with what I would have earned for the same position in New York, given the much lower cost of housing in Tel Aviv, plus a mobile phone and a laptop. Even if I had a driver's license (what, I didn't tell you that I don't know how to drive?), the car issue was moot because I'd found an apartment within walking distance of the central Tel Aviv office. My sub-lettor in New York wrote that he wanted to stay on for at least another year, and agreed to continue paying the rent on a quarterly basis. I'd even met a guy.

Everything looked bright and wonderful.

When I write that there was no hint of the horror to come, you might shake your head and point to the fact that Barak and Arafat had just failed to come to a final agreement at Camp David. Or you might point out that there had just been a couple of violent incidents in the occupied territories - a soldier killed in an ambush in Gaza, some Palestinian policemen who had opened fire on their Israeli colleagues during a joint patrol in the (we thought) soon-to-be-evacuated West Bank. That the settlments in the West Bank were still expanding. But this is hindsight talking. There were some tiny ripples of unease in the aftermath of those incidents, but overall, seven years after the famous Arafat-Rabin handshake in the Rose Garden, Oslo seemed like a done deal. The IDF had already withdrawn completely from large chunks of the West Bank, which had been handed over to Palestinian authority. There was a Palestinian airport in Gaza, and a casino jointly owned by Palestinians and Israelis in Jericho. The IDF had withdrawn completely from South Lebanon, and Barak was promising imminent peace with Syria.

It seemed so very self evident that peace was good for everyone.

So when all hell broke loose at the end of September 2000, we were all in a state of shock. We sat in front of the television, watching the unceasing coverage of riots in the West Bank and IDF counter attacks, and we felt as if our world was falling apart.

I wrote in my diary, "I just feel like standing in the middle of it all and screaming, 'STOP!'"

NEXT: Watching the conflict heat up. The day of the lynch. The suicide bombings. And why I decided to stay.