Casco Viejo, the old quarter of Panama City, is being rapidly transformed, like much of Panama's dynamic capital. A walk through its Unesco-listed colonial streets, where new restaurants, cafés, and hotels are germinating, gives you a glimpse into the unique history of a country at the crossroads of the world.
Start where modern-day Panama began, in the Plaza de la Independencia (also called Plaza Catedral), at the centre of the old colonial quarter. Dotted among the trees are bronze busts of the men who founded the nation, following its independence from Colombia in 1903. The most eye-catching building is the cathedral, which was built in the 18th century when the treasure-hungry Spaniards were still in control; its white-washed bell towers are strikingly inlaid with mother of pearl from Panama's Pearl Islands. Across the square is a restored colonial mansion, once the headquarters of the Panama Canal Company, and now a museum devoted to the 100-year history of the country's best-known feature (00 507 211 1649; museodelcanal.com; $2/£1.25).
Leave the square on Avenida Central, resisting or succumbing to the temptation of the Granclément's ice cream parlour (00 507 223 6277), before a right turn down Calle 3 brings you to the church and convent of Santo Domingo, which sheds a surprising light on the origins of the canal. The original buildings were destroyed by fire in the 18th century, with the exception of a striking brick-built, flat arch. The arch's staying power helped to convince US engineers that Panama was geologically stable enough for them to undertake construction of the canal.
The US was not the first country to take on the Herculean challenge of digging the huge ditch. The earlier, failed attempt by France's Ferdinand de Lesseps (of Suez Canal fame) is commemorated in the Plaza de Francia, which you reach by turning right down Calle 2. In the middle of the square is an obelisk crowned by a cockerel, which was donated by the French. The square is encased by the old city walls, whose vaults once held notorious dungeons but now house a French seafood restaurant called Las Bóvedas (00 507 228 8058; closed Sundays).
A few steps up out of the square bring you face to face with the Pacific Ocean. A path, Las Bóvedas, follows the shoreline. It is shaded by bougainvillea and lined with stalls selling handicrafts. Spot pelicans and cormorants and, out to sea, ships queuing to enter the canal. Closer in, a row of concrete piles marks the route of an offshore ring road intended to alleviate Panama's dire traffic. Critics of the scheme claim it will ruin the sweeping bay view to the skyscrapers of New Panama, 2km away.
Panama has been a nation for only 111 years and a functioning democracy since 1989, when the military strongman, General Manuel Noriega, was removed from power by a US invasion. The Americans employed very loud rock music as a psychological weapon to flush him out from the Vatican embassy, where he had sought refuge.
At the junction of Las Bóvedas and Calle 2, is the Antiguo Club Unión, where Noriega hosted lavish parties for his troops and supporters. Now an atmospheric ruin of crumbling stone and rusting metal amid straggly bushes, it featured in the James Bond film, Quantum of Solace. It is slated for renovation and relaunch as a luxury hotel.
Casco Viejo's architecture covers a wide spread of styles and periods, and a left turn into Avenida B brings you to the imposing National Theatre. Its pink and yellow exterior is Neoclassical but the interior is truly operatic, with gold-painted balconies and lavish murals, which are well worth looking at even if you can't find an event to attend (00 507 501 4107; teatrodepanama.com; $1/60p).
The neighbouring square – Plaza Bolívar – is the most elegant and lively of Casco Viejo's plazas, with cafés and restaurants under its arcades. In the centre is a suitably imposing statue of the South American hero, Simón Bolívar, who in the early 19th century, led the successful revolt against the Spanish colonisers.
On the south side is the most attractive building in the square and arguably the whole Casco Viejo, el Palacio Bolívar. The carefully renovated building was originally a convent and is now occupied by the Panamanian Foreign Ministry. It also houses a small museum, El Salón Bolívar, whose highlight is the bejewelled sword of The Liberator – as Bolívar was known. It is a replica of the Venezuelan original and was presented to Panama in recognition of Bolívar's declaration in 1824 that if the world were to have a capital it should be on the isthmus of Panama (00 507 228 9594; panama-museums.com; closed Sun-Mon; $1/60p).
Carry on northwards down Avenue B to feel the real vibe of the Casco Viejo, where tumbledown colonial buildings stand side by side with mansions that have been restored to their former glories. Many of these are foreign-owned and have become coffee shops, Italian restaurants, and boutique hotels.
Characteristic of this new wave, and a good place to end the walk, is Tántalo Hotel, Kitchen and Roofbar, where Avenida B is crossed by Calle 8. The spacious downstairs bar with communal trestle tables is resplendent with a vertical garden, while the roof terrace is the place to be at night, when there's music, margaritas, and a wonderful view across the bay to the mushrooming skyscrapers of New Panama.
Panama Carnival takes place from 1-4 March this year. Casco Viejo's newest address is the American Trade Hotel, a partnership with US-based Ace Hotels. It fuses the building's 1917 Neoclassical and Art Nouveau heritage with modern luxuries such as Frette linen and Aesop toiletries (00 507 211 2000; acehotel.com/panama). Doubles from $249 (£166), room only.
The city's first Metro line will start service between the Los Andes shopping centre and Allbrook domestic airport from the middle of next month; the most convenient station for the Old Town is 5 de Mayo (elmetrodepanama.com).
Another big launch will be Frank Gehry's Biodiversity Museum, which hopes to rival the canal as a visitor attraction when it opens this summer. Its startling jumble of colourful, inclined planes will house eight exhibition halls, which showcase the extraordinary diversity of Panama's flora and fauna (00 507 314 0097; biomuseopanama.org).
Mick Webb travelled to Panama as a guest of the Panamanian Tourist Board (00 507 526 7000; visitpanama.com).
There are no direct flights from the UK to Panama. Air France (0871 663 3777; airfrance.co.uk) and its partner KLM (0871 231 000; klm.com fly from many UK airports via Paris and Amsterdam respectively. Iberia (0870 609 0500; iberia.com) flies from Heathrow via Madrid.
Tántalo Hotel (00 507 262 4030; tantalohotel.com) offers doubles from $164 (£103), including breakfast.