Budapest Is One of Central Europe's Gayest Cities. and in More Ways Than One. as Communist Relics Harden into Cold Museum Pieces, the Hungarian Capital's Dazzling Cosmopolitan Past-Preserved in Stone and Gilded in Gold-Is Heating Up like Never Before

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Cracked, soot-covered cherubs climb the facade of a huge blackened building, reaching toward trees that shoot out of decrepit turrets. It's not a public building, so though my guidebook identifies it as the once grand Gresham Palace, I move on.

That was in 1991. Recently, I looked up at those same cherubs, now scrubbed and fresh-faced, then walked through the doorman-attended portico of the Gresham. Greeting me were a gorgeous mosaic floor, a dramatic glass ceiling, towering wrought-iron gates, and a bustling bistro. This onetime symbol of a city in disrepair has been transformed into a stunning Four Seasons hotel.

The story of this building is oddly parallel to that of Budapest: once a cultural hub, bombed mercilessly during World War II, left to wither under Soviet oppression, and now emerging yet again as a cosmopolitan center. Though no one will mistake it for Berlin, Budapest is moving forward-rebuilding, opening its doors more to capitalism and gay culture, and spinning it all in a uniquely Hungarian way. Putting its own stamp on outside influences is something the city has been doing for centuries. And nowhere is that clearer than in its architecture. In fact, so many different styles exist that most design is referred to simply as "eclectic."

Look at Budapest from high on Gellert Hill and it's practically a paean to religion--a city of churches and spires, neatly bisected by the not-so-blue anymore Danube. The two sides, Buda and (you guessed it) Pest, were founded as separate towns but merged in 1873. Today, Buda is full of parks, hills, and old monuments, while Pest is the center of gay culture, shops, outdoor cards, and hip restaurants.

Yet the two sides are connected by more than a few bridges and a metro system (the first in continental Europe). The entire city--and country--are trying to shake off the Soviet doldrums. "After political changes" is how locals talk about post-Soviet rule, and some 15 years after those changes, East German-manufactured Wartburg vehicles and blocky utilitarian buildings still stand as signs of a bland 40 years. But now those cars sit next to shiny new VWs, and those dour buildings stand next to Jaguar dealerships.

This mix of disparate elements is very much a part of Hungarian culture. After all, since the 1st century this area has been ruled in turn by Romans, Magyars, Mongols, Turks, Austrians, and Soviets, all of whom have left their marks. In that sense the Gresham--built in 1906 to house the British-run Gresham Life Assurance Company--is the quintessential Budapest building: Its outsize iron gates are typical Hungarian art nouveau, lovebirds in the railings nod toward Hungarian folk art, stained glass windows line the hallways, spectacular rounded glass ceilings infuse the lobby with fight and majesty.

Yet modernity is also everywhere. The original asphalt floor--chic in 1906--has been replaced with Italian mosaics. Work from contemporary Hungarian artists fills the public spaces. A gorgeous modern Czech chandelier hangs over the front desk. And the brand-new spa is housed on a brand-new floor.

"Other Europeans can use history in a modern way," says Aron Gabor, the lead architect on the hotel restoration, "but that doesn't happen in Hungary because of the Soviet oppression. To use the past we have to go back before that time, to places like the Gresham. And there's not as much of that past preserved as we'd like."

Indeed, fully 80% of Budapest was leveled by WWII bombs. And that wasn't the first time the city had been reduced to ashes: The Mongols had destroyed it centuries earlier. Any classic buildings standing today are either recreations or rare survivors. The mix is best seen in Buda's Castle District, where you'll see a number of Gothic, Baroque, and Renaissance buildings towering above the ubiquitous utilitarian Soviet "panel houses."

Earthquakes, attacks, fire, and war have besieged this area, yet at its center still stands gorgeous Matthias Church, a fitting study in architectural melding. …