Cheers! Palestinians lift their glasses to the first beer festival in the Occupied Territories

Yet the more than 5,000 visitors were enjoying the first-ever Palestinian beer festival, in the heart of the occupied West Bank. Even the few setbacks were familiar; the Palestinian National Theatre troupe failed to turn up on the second day because of artistic issues with the noisiness of the child-packed hall they had played the previous afternoon. "If you mention this please say how grateful we are to them for coming at all," said the October Fest co-ordinator Maria Khoury. "They performed for free and we'll find a quieter venue for them next time."

But if a beer festival in a small and impoverished Arab town in the shadow of conflict represents a triumph of will over circumstance, so too is the entrepreneur whose business sponsored the event. When Nadim Khoury, a Christian Arab, like all of Taybeh's residents, started the only Palestinian brewery back in 1994, when hopes of a lasting peace were at their highest, he was careful to secure Yasser Arafat's endorsement to protect it from militant Islamists.

Unable even so to borrow money because the banks feared an anti-alcohol backlash, he sunk some £800,000 of his family's savings in the imported state-of-the-art microbrewery plant which by the end of the Nineties was producing 600,000 litres a year (70 per cent of it for the Israeli market) of Taybeh Gold, a no-additives, 100 per cent pure, unusually malty and ultra-drinkable lager-type beer.

But then came the intifada, and the multiplication of Israeli checkpoints and road closures that have helped to see his business fall by 75 per cent and his labour force drop from 13 to six.

The drop of more than half in Israeli sales has been compounded by Palestinian centres such as Gaza and Nablus going "dry" under the influence of Hamas and other Islamic groups. But endlessly innovative, Mr Khoury is now harnessing German techniques to develop a non-alcoholic beer for those markets.

It is less easy to overcome the security hold-ups that have undermined his distribution and make export almost impossible. He can't afford the £50,000 pasteurisation plant that would lengthen the six-month shelf life of his beer in the face of the delays his product would face at the Israeli ports of Ashdod and Haifa.

Instead he reached an agreement with a small German firm to brew his beer. For the past few months Rowan Davis, a peace campaigner and Ipswich publican, has been importing 100 cases a month of the European-brewed version to Britain for the ICA, Hackney Empire, Ritzy Cinema and a list of more right-on bars and gastro-pubs listed on Ms Davis's website www.alternativebeer.co.uk.

But she admits it has been hard to break even: she would much prefer to import the beer from the West Bank, "which is what the customers really want and would genuinely help the Palestinian economy".

Even at home , where the beer is the staple at - for example - Jerusalem's American Colony Hotel, Mr Khoury faces problems keeping the brand in the public eye. "Why did Mexican Corona, which is not a good beer, do so well? Because of advertising, but that's something I can't afford," he says.

But the Khoury family say the biggest threat of all to the brewery was an incident a month ago when it came within five minutes of being burned down. This followed a dark period in the history of Taybeh and its normally harmonious relations with its Muslim neighbour Deir Jareer.

Several hundred of the latter's residents torched 14 houses belonging to another Taybeh family, the el Khouriehs, one of whose married members, Mahdi, they accused of being the father of the unborn child of an unmarried woman in Deir Jareer, Hiyam Hijaj, 32, who had been found dead from poisoning.

The crowd, says Mr Khoury, advanced on the brewery. "I stood holding hands with my wife and children and my brother and sister and their families. I told them I refused to leave the brewery. We were only there for five minutes but it was enough to stop them till the police came."

The scars of this episode have yet to heal. The woman's brothers were arrested on suspicion of having forced their sister to take poison in an "honour killing"; the Taybeh man is still in protective custody having volunteered to take a DNA test to show he was not the father. Taybeh's mayor, Daoud Khoury - Maria's husband and Nadim's brother - paid £3,000 of his own money for the test and says: "The Palestinian Authority is still not publishing the results. We are demanding that they be made public so justice can be done." Mrs Khoury charges: "No one seems concerned about who killed the girl, only about who slept with her."

Efforts by a posse of senior Muslim and Christian clerics from Jerusalem to solve the dispute have been made more urgent by the Hijaj family's threat to kill Mahdi el Khourieh if he is released.

So the Taybeh festival was partly a way of rising above these recent afflictions; and partly to spearhead a "buy-Palestinian" campaign among West Bank residents to help the devastated economy in Taybeh and in the rest of the occupied territories. But most of all, perhaps the festival was a clear sign that Mr Khoury is not going to give up before the arrival of peace, a Palestinian state, and the opportunity to sell his beer as freely as he wishes.