BAGHDAD, (AP) – The street market bustles in the early mornings and late afternoons as shoppers come out to buy fruit, bread, clothes and toys. Late into the hot summer nights, whole families gather to eat grilled kebabs at tiny stalls, their small children shrieking as they play tag.

The Hurriyah neighborhood of northwest Baghdad, gripped by a spasm of deadly ethnic violence a year ago, has grown markedly calmer over the past eight months. It is now the kind of area that both U.S. and Iraqi officials point to when they cite progress at stabilizing Baghdad.

But only Shiites are welcome — or safe — in Hurriyah these days. And neither Iraq’s government nor U.S. or Iraqi security forces are truly in control.

Instead, the Mahdi Army militia runs this area as it does others across Baghdad — manning checkpoints, collecting rental fees for apartments, licensing bus drivers, mediating family fights and even handing out gas for cooking.

The U.S. Army still runs regular patrols, sometimes on foot, sometimes by Humvee. And Iraqi police, on the streets, are nominally in charge.

But underneath the calm, an armed group hostile to the United States holds a firm grip on power. Some fear the Mahdi Army is simply biding its time — eager to grab outward control and run things its way whenever U.S. forces pull back.

“They control people’s lives,” said one resident of Hurriyah, a Shiite government employee who would give his name only as Abu Mahdi, 36, because he feared Mahdi militia reprisals. Scornfully calling them uneducated, bullying teenagers, he said: “They are worse than the Baathists” — the party that held total authority under the rule of Saddam Hussein.

Others are more supportive of the militia.

“Our area is safe because of the presence of the Mahdi Army,” said Abu Hussein, a 50-year-old taxi driver, who also refused to give his full name. “Most people feel that way. Very few are anti-Mahdi Army.”

Yet even Abu Hussein can find the militia oppressive. The rent payments they collect from fellow Shiites displaced from other parts of the city, who now live in apartments in Hurriyah that once belonged to Sunnis, are little more than protection money, he complained.

At a store last week to buy ice, Abu Hussein said he came across the storekeeper and a customer arguing over a payment. When the customer threatened to take his complaint to the Mahdi Army, the storekeeper began stammering in fear. “His face got red,” Abu Hussein said.

The Mahdi Army’s control here has its roots in the ferocious wave of ethnic hatred that rippled across an arc of formerly mixed Baghdad neighborhoods last summer and fall.

Until late 2005, Hurriyah was a relatively safe, working-class community of Sunnis and Shiites. The first signs of trouble began that year, when gunmen from a Sunni extremist group began abducting and killing Shiites. In early 2006, Mahdi Army militiamen from their base in nearby Sadr City — about seven miles to the east — set up an office in Hurriyah’s main outdoor market, promising Shiites protection.

Last fall, fliers went up, warning that 10 Sunnis would die for every Shiite killed. As a wave of Sunni car bomb attacks on Shiites killed hundreds across Baghdad, reprisal attacks on Sunnis steadily escalated.

Throughout the fall, dozens of bodies turned up each day in Hurriyah and other neighborhoods. By late November, Sunni mosques in Hurriyah were being attacked, never yet to reopen. U.S. troops came under frequent sniper fire. Schools closed.

By early December, almost all Sunnis had fled Hurriyah, except for a handful of elderly Sunnis, and the Mahdi Army was running several checkpoints. By March, Shiites who had been displaced elsewhere were moving into Hurriyah, taking the shops and apartments of Sunnis who had fled.

By May, the murder rate in Hurriyah fell from more than 200 a week in December to about 10 a week, according to U.S. military forces then.

When the surge of American troops gathered steam in late spring, the Mahdi Army generally stood down from confrontation, on the orders of its leader, the firebrand Shiite cleric Muqtada al-Sadr.

Yet behind the scenes, the group stepped even more strongly into the “government’s authority vacuum,” said Abu Mustafa, 37, a government employee and father of three. “People began to rely on the Mahdi Army and Sadr’s office in everything — even in family affairs.”

A few weeks ago, a dispute among brothers living in a house in his alley caused one brother to go to a Mahdi Army office and bring back armed men, Abu Mustafa said. Panicked neighbors prodded the brothers to make up before the militiamen could intervene.

Residents say only a handful of elderly Sunnis now remain. One Shiite woman — divorced from a Sunni man — fled recently with her 12-year-old son after Shiite militias broke into her parents’ house and threatened to kill the boy because he was Sunni.

The neighborhood’s three main streets are blocked by checkpoints run by teenagers, none wearing uniforms, but with pistols sometimes tucked in their belts and walkie talkies in hand. They stop and question each driver.

U.S. forces — and even locals — are hard pressed to know who is a militiamen and who just a resident. But U.S. officers on the ground say they believe the neighborhood is firmly under the militia’s control, infiltrating and influencing the Iraqi police who patrol the area.

The Mahdi Army, or JAM in Arabic, is like “a neighborhood watch group on steroids,” said Lt. Col. Steve Miska, 39, from Greenport, N.Y., head of the U.S. Army’s Task Force Justice, part of the 2nd Brigade, 1st Infantry Division.

The local area council in Hurriyah also is controlled by the group. The council is supposed to control the distribution of fuel and cooking gas cylinders to people. But the Mahdi Army usually takes this task, giving preference to loyalists and relatives, said Abu Hussein, the group’s supporter.

Because he is not an insider, he is forced to buy his gas on the black market, he said.

Almost all women now wear the full Islamic hijab veil, even girls in elementary school. During school holidays, boys and girls are encouraged to attend religious courses held in Shiite mosques, and are given CDs of songs of the Mahdi Army.

“Hurriyah is a very beautiful place,” said Abu Mustafa, the government employee who said he helped in Iraq’s first elections and once held high hopes for his country. “But unfortunately, it fell in the hands of gangs.”