(Reuters) – One year after Bahrainis, inspired by uprisings in fellow Arab countries, occupied a central public space in Manama their demands for political reform remain unmet, the economy has drawn almost to a halt and sectarian suspicion tears at the fabric of a small island with big strategic punch.

The protests began as a spontaneous movement embracing people from both the majority Shi’ite community as well as Sunnis, cutting across religious and class divides, with demands for broad political, social and economic reform.

But it descended into sectarian violence as backroom talks on democratic reforms that would have transformed Bahrain into the first real democracy in the Gulf went nowhere and hardliners in government and the opposition seized the initiative.

One year on, the dividing lines have hardly changed — after having been molded in the ferment of four weeks of revolutionary tumult on a level Bahrain had not known before.

The government hopes the protest movement, between opposition party rallies and youths clashing with police, will lose steam and international attention will fade.

But the fervor on the ground suggests that activists are set on keeping the country in a state of semi-crisis for however long it takes before meaningful dialogue begins.

“With February 14 there was a political awakening. Everyone in Bahrain became politicized, but since March they have been very entrenched in their positions,” said Omar AlShehabi, director of the Gulf Center for Development Policies in Kuwait.

“But it’s very turbulent, and with such a politicization there are bound to be big shifts in the coming years.”

The government has refused to budge on opposition demands to give the elected chamber of parliament the power to form cabinets or remove the prime minister of 41 years, a pillar of the ruling elite seen as resistant to swift change.

It offered the leading Shi’ite party Wefaq only token seats in a national dialogue and did not contact it directly to join a committee formed to look into improving human rights after an international commission set up under international pressure revealed systematic torture metered out under martial law.

Wefaq, which has commanded nearly half the electorate in past parliamentary votes, saw the offers as insults intended to belittle or even delegitimize it.

“The opposition are fighting a gigantic state with so much money, but people won’t give up and are ready to sacrifice,” said Farida Ismail, a senior figure in the secular Waad party.

“We want to say ‘be a fair ruling family’ – enough with corruption, enough with dictatorship.”

SECTARIAN DIVIDE

As a sign of the sectarian wounds that remain, graffiti has been daubed on a wall outside Waad headquarters in a Sunni district of Manama saying: “Down with Iran.”

The accusation that the opposition are beholden to Iran as protector of Shi’ites has been a feature of Bahraini politics for many years but has risen to new heights since the uprising raised the specter of Shi’ite empowerment.

Sunnis who gathered at a Sunni mosque in Manama last Saturday talked of their fear that free elections to form governments would mean clerical rule by default since many opposition leaders are Shi’ite clerics and they would seek advice from clerics in other places where Shi’ism is strong.

“We don’t want a copy of Iran or Iraq here,” said Nader Mohammed, a banker. “They are manipulated by a single religious individual. Elected government is fair enough but taking orders is not accepted.”

Wefaq sees such talk as Shiaphobia and has tried to assuage the concerns. Its leader Sheikh Ali Salman asked followers at a rally last week to avoid sectarian and party flags and only carry the national one during this period of protests.

But religion remains a deep source of inspiration for ordinary Shi’ites who feel shut out of their country’s political and economic life, which is dominated by the ruling Al Khalifa dynasty and allied Sunni and Shi’ite families.

The ritual of opposition rallies is steeped in the Islamic traditions of Bahrain’s Shi’ite communities, from praying to the Prophet Mohammed as well as his family, to selling trinkets bearing the name of Shi’ite Imams such as Ali and Hussein.

MOLOTOVS VS. TEARGAS

Divergent views on policing is one stark example of the failure of government and opposition to see eye-to-eye.

After live fire killed protesters last February, helping ignite the revolutionary movement further, the interior ministry has stuck to tear gas, rubber bullets and stun grenades.

It has also hired U.S. and British police chiefs to help reform its conduct after the revelations of torture and deaths in custody of Sh’ite detainees last year.

One of them, former Miami police chief John Timoney, told Reuters this week the ministry was serious about reform and would hire Shi’ites in a new recruitment and training drive, but he said youth violence in villages was posing obstacles.

Yet opposition parties and youths say police are brutalizing their communities with massive use of teargas and beatings that now take place outside police stations to avoid detection.

Since the end of martial law in June, the death toll in Bahrain’s unrest has risen from 35 to over 60, activists say.

Timoney even argued that teargas use was down. “Police are responding to the assaults they find themselves in,” he said. “There has been a huge increase in use of Molotov cocktails.”

The former Miami police chief, who used heavy tactics to quell anti-globalization protesters in 2003, also denied a political motive to the nightly clashes between youths and police.

ECONOMY SUFFERING

The violence is taking a toll on Bahrain’s economy.

Economic conditions have improved considerably since the first quarter of 2011, when gross domestic product shrank 1.3 percent because of street violence that temporarily closed businesses and prompted the evacuation of foreigners. GDP grew 2.2 percent quarter-on-quarter between July and September.

The Bahrain Air Show last month, the first big international event since the unrest, was marred by protesters who burned enough tires to fill the skies visibly with smoke over a large area. It is not clear if Bahrain will still manage to host the Formula One motor racing championship in April.

Once a buzzing tourism and banking hub, Manama is not the party town it used to be. The number of weekend visitors from Saudi Arabia is visibly down and many hotels and bars are empty.

Ahmed Abdullah, who attended the loyalist rally Saturday, said his property business was ruined. “I own a building with four flats – they’ve been empty for 12 months,” he said, citing areas where many people were flocking to escape the stones, tear gas and traffic snarls of frontline neighborhoods.

One bright light on the horizon is increased talk of initiatives to bring the two sides together, plus the return to Bahrain of Cherif Bassiouni, whose rights report in November presented a schema of what went wrong last year and parameters for fixing it that most parties grudgingly accept.

A group of young people organized the first Bahrain Debate this month, where opposing voices engaged in calm discussion.

“We’re highly supportive of any effort to bring temperature down,” a Western diplomat said.