DERBENT, Russia, Sep 14 Where once were spices and silks on the market stalls in the fort

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DERBENT, Russia, Sep 14 (Reuters) Where once were spices and silks on the market stalls in the fortress town of Derbent, now mainly vegetables and household cleaning products clutter the tables.

The stench of dried fish and meat hangs in the air as the wind blows plastic bags along narrow streets below the World Heritage Site. A short walk away, the gentle waves of the Caspian Sea lap at a sun-baked beach.

If it were anywhere else in the world, the fortress built 1,500 years ago as a stopover on the Silk Road between Asia and Europe may attract swarms of tourists.

But in Russia's North Caucasus region, a mixture of forces -- from separatist nationalists to Islamist extremists -- have for more than a decade been waging a violent campaign against Moscow, and Derbent bears some of the social and economic scars.

A lone pair of Russian holidaymakers walks hand-in-hand through the streets: the couple says friends were amazed when they heard of the planned trip to the town in Dagestan, a mainly Muslim republic on Russia's southern fringe.

''They warned us against it,'' said 23-year-old Natalia Pototskaya from Moscow. ''They said it wasn't safe and that we were crazy.'' To the west of Dagestan is Chechnya, blighted by two separatist wars since 1994 which have spawned violence that spilled over into Dagestan and neighbouring regions.

In 2002, kidnappers seized a Dutch aid worker in Dagestan who was only freed 1-1/2 years later after a 1 million euro ($1.37 million) ransom was paid. Sporadic violence continues.

This June a bomb killed four policemen when they were exercising in a school yard.

Some analysts say Dagestan is becoming a breeding ground for Islamist militants who, as fighting in Chechnya fizzles out, could launch a new wave of bombing and ambushes.

But people in Derbent -- population about 100,000 -- are most vocal about the lack of opportunities.

''The problem is that there are just no jobs, nothing for the young,'' a barber said as he snipped and shaved customers' hair in a small shop. ''Derbent has seen better days.'' In the quiet calm of the courtyard outside Derbent's main mosque, Alim Akperov, a 52-year-old vet, said leaving Dagestan is the best option for his children.

''All the institutes have been closed, all the factories have been closed, crime is rising and so is narcotics use,'' he said.

Hypodermic needles, vodka bottles and cigarette butts littered the top of the old walls and scruffy fishermen, not tourists, lined Derbent's beach.

CASPIAN GATES Derbent lies on a narrow strip of flat land between the towering Caucasus mountains and the Caspian, the only gap where traders and their camel caravans travelling this way along the Silk Road could get through.

A network of trading towns which 1,000 years ago linked Europe to China, the Silk Road was the civilised world's main artery where merchants traded luxuries and foodstuffs, gossips swapped stories and academics spread knowledge.

To control the trades, Derbent's rulers built a wall reputedly 40 km long and defended by 30 towers across the gap. The fortress in Derbent guarded the Caspian Gates -- the only way through the wall.

Russian officials acknowledge that grinding poverty in places like Dagestan helps breed extremists, and they have poured millions of roubles in subsidies into the republic. Much of the money though gets diverted by corrupt officials.

A few hundred km up the Caspian coast from Derbent is Makachkala, the capital of Dagestan.

A large Soviet-era factory in the centre of the city lies idle and in the middle of the working week, young adults walk around the city's streets or lounge on the dirty beach.

Outside a housing block on the outskirts of the city, 52-year-old Anna Kamilova carried a basket of grapes.

Before the breakup of the Soviet Union Kamilova said she had earned a decent salary at a factory. Now she earns 1,000 roubles ($40) a month sweeping the streets. She will sell the grapes at the market to supplement her wage.

''All the family live here, but the young have to leave to find a better life,'' she said.

Behind her, bullet marks from a gunfight between federal forces and rebels nearly two years ago encircled the window of a second-storey apartment.

REUTERS PB ND0902

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