This mountain kingdom was a haven for hippies in the Seventies, says Phil Reeves. But is the party over?

The first and only time my head has actually felt round - and by that I mean completely three-dimensional from the inside - was in a wooden shack on the Tibetan border a quarter of a century ago. It was the era of James Callaghan and Jimmy Carter. Elvis was alive, just. Mao Tse-tung had recently died. We were young, pretentious and, hey, Finding Ourselves.

The first and only time my head has actually felt round - and by that I mean completely three-dimensional from the inside - was in a wooden shack on the Tibetan border a quarter of a century ago. It was the era of James Callaghan and Jimmy Carter. Elvis was alive, just. Mao Tse-tung had recently died. We were young, pretentious and, hey, Finding Ourselves.

The 3D tingling inside my skull spread to my tongue, toes, elbows and ears. Exactly why this was so hilarious was never afterwards clear. But it brought on giggles of such intensity that I had to stagger outside into the mud to recover.

Gulping the fresh Himalayan air, eyes watering, I looked blearily up the valley towards the watch-towers and stark new concrete buildings where China's border guards blocked the path to Tibet. Only a few hundred yards of woodland separated our little hash party from certain imprisonment.

We were part of an army of British students and acne-spangled kids in the "gap year" who every summer picked up their copies of Middlemarch and set off eastwards on a mission of self-discovery, mingling on the way with a tide of other European youngsters. Another rucksack-humping army of Antipodeans flooded westwards, determined to explore the world before settling into the good life in Sydney.

Drifting erratically amid this two-way traffic were thousands of hippies who had rejected Western consumerism, capitalism and draconian drug laws in favour of hanging out indefinitely in the Third World's more tolerant and cheap spots. Everyone eventually ended up in Nepal. And everyone, including the somewhat puzzled Nepalese, called the hippies "freaks".

In January this year, I returned to Kathmandu for the first time. My mission was to cover the latest installment of the brutal six-year "People's War" between Maoists and the government which has cost some 8,000 lives. The current monarch, King Gyanendra, took power after the crown prince drunkenly massacred much of the royal family in June 2001, before killing himself.

Two days after my arrival, a ceasefire was unexpectedly declared. Nepal's mightily abused and overwhelmingly poor 23 million people were able at last to have a break from the tyranny of conflict and systematic abuse, albeit probably short-lived.

So there was time to search the clogged-up human warren that is Kathmandu for the scuff-marks of Western itinerants who - for all the current rhetoric about the frontier-breaking internet and the new global village - were able to range more freely 26 years ago than their contemporary counterparts.

The combination of global insecurity post-September 11, south Asia's regional instability and the Maoists has done great damage to Nepal's tourist industry. The music of Deep Purple and Led Zeppelin still coils out of the near-empty bars and cafés of Thamel, a network of alleys cluttered with trekking agencies, money changers, internet cafés and shops advertising ayurvedic massages. It is still pleasingly bizarre: five hours 45 minutes ahead of GMT (asserting its separation from India by being 15 minutes ahead). This is the year 2059 (they use a lunar calendar).

Marijuana is banned, but available. Pushers and pimps occasionally sidle up with whispered offers of drugs or women. Yet for now the party seemed to be over. But for a handful of casinos in the posh hotels, I found that the place shut for business at 10.30pm.

In the Seventies, Kathmandu was a haven. It was a major destination for the "Magic Bus" which lurched back and forth across Asia, packed with hairy youngsters, defiant in its multi-colour livery, oblivious to the conservative sentiments of the inhabitants whose landscape it was traversing. It was a rat-infested oasis of cheap cafés, free love, and $1-a-night flop-houses where the seriously cool could sit around munching buttered toast and mourning Jim Morrison without fear of ridicule. Hash cookies were sold in the shops.

Dope was very, very cheap. Even so, I can remember coming across young Westerners who, though guests in one of the world's poorest nations, were busking. The memory of one mud-caked and emaciated cockney squatting on the pavement, naked but for a grubby loin-cloth, has stuck with me.

He had a little copper collection pot by his side, and long matted hair, like a Hindu "sadhu", a holy man. But he was simply begging. I don't know whether anyone gave him much: most young travellers tended to be fantastically stingy, haggling over tiny sums. We made the worst tourists.

"All that hippie stuff is finished now," said Chandan Shrestha, 45, proprietor of what was once a popular hippie hostel, The Traveller's Paradise Hotel just off Durbar Square, a cluster of impressive-looking temples which forms the centre of Old Kathmandu. "There were so many hippies that some of them ended up sleeping in the streets. They used to beg from each other. Every other shop sold hash. Now those places are all cyber cafés."

Nepal - fed up with the junkies - banned hashish in the early years of the late King Birendra; the following night, perhaps in protest, one of the city's largest palaces was burnt down.

Our little group fell into the most earnest of the category of travellers to Nepal (after the depressingly worthy mountain trekkers): we were first-year university students on holiday. Within our ranks, there were occasional touches of Hippie-Lite: baggy cotton smocks and a splash or two of tie-dye, subconscious attempts not to alienate the freaks in case they automatically chalked us up as tossers. To my young eyes, they seemed rather impressive.

Our expedition included Alison Cahn, who went on to become a TV documentary maker; Pauline Boerma, now an international environmental consultant; and Andrew Tyrie, who has been Conservative MP for Chichester for the last six years.

I do not intend to further Mr Tyrie's political career by suggesting that he inhaled, or indeed went anywhere near the chunky-looking joint which had overwhelmed me in the hut; he behaved impeccably, like a man who already knew that public life lay ahead.

In fact, that particular spliff belonged to a wild-eyed pig-tailed American whom we had encountered on the road and who had invited me to spend an afternoon helping polish off his sizeable supply of hashish before taking the country bus back to Kathmandu. The American was the real thing, a copper-bottomed, brass-necked, steel-nerved freak, a member of a species now almost as hard to find in Nepal as the yeti.

But they have at least been immortalised in name: Freak Street is just off Durbar Square. You can still buy cloth tie-dye shoulder bags, bead purses, sagging long-sleeved muslin T-shirts and brilliantly coloured bandanas. "Some freakies still come here," said Hari Sharan Bhetwal, the 24-year-old proprietor of The Freak Street Trade and Export shop, gazing forlornly down the near-deserted street in search of clients. "We still get one or two, but not many."

Although down, they are not out. Across the road, the smell of fresh paint wafts out of the Yellow House Lodge, a dingy $2-a-night Freak Street doss-house. The proprietor, Jadgi Shawdr, 24, has been decorating. Giant crimson and cadmium yellow flowers have appeared on the damp ochre-coloured walls. So have a flame-throwing psychedelic dragon's face, the word "Peace" in large letters, and - oh, joy! - the old ban-the-bomb logo.

The hippies will be back one day, Jadgi explains happily; he wants to be ready. He is planning to hold jamming sessions with his electric guitar; he can play "Stairway To Heaven". He certainly looks the part - goatie, pigtails, worn-out jeans - although he says he does not smoke dope any more.

"It is really good to be a hippie, like, happy, man. They have freedom, no stress. They can go anywhere and, like, just survive." Right now, he says, Nepal has "all this political bullshit" to contend with. "It's also really tight over here for the hashish. If the police see you smoking, they put you in jail for six months."

I nodded and thanked him and began to leave. Even in our farewells, he had history down to a T. "Bye! Stay cool! Peace!" he cried. For a brief and happy moment, my head felt three-dimensional again.