What's in a name?

These days Northern Ireland's maiden city goes under the cumbersome but all-inclusive Derry-Londonderry. There you'll find a handsomely refurbished Anglican cathedral, a footbridge that joins the west bank of the city (where the population is predominantly nationalist) to the Waterside (where the population is roughly 50% Catholic, 50% Protestant), city walls that this year celebrate their 400th anniversary and – just possibly – a sense of hope it's not had for a long time.

The "maiden city" – home to around 107,000 people, many of them young – is the UK City of Culture. Consider that. In the past the "UK" in that title would have been a big problem for the city's majority nationalist population. When the city was shortlisted two years ago Maeve McLaughlin, Sinn Fein's leader on the city council, said the "UK" should be stripped from the title if the city won.

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That didn't happen and so on January 1 it became the first UK City of Culture. Over the next 12 months the Turner Prize exhibition is coming to the city, the London Symphony Orchestra is coming, the American playwright Sam Shepherd is coming and actor Stephen Rea and playwright Brian Friel – local boys made good – are coming back. You won't be able to move without tripping over culture.

In some ways that fits the city rather well. Take a walk with guide Martin McCrossan around Derry's Walls and he'll stop just above Bishop Street. Down there, he'll say, in St Columb's College, Seamus Heaney went to school. Friel went there too. As did politician and Nobel prizewinner John Hume. Not so far away and a few years later The Undertones were born and raised here. "If not for the Troubles we'd be known for the right reasons, not the wrong ones," McCrossan says.

But it's not, though, is it? This is a city where the divisions of Northern Ireland are there in its name. This is where the Troubles started in the late 1960s when civil rights marches ended in riots. This is where the tragedy of Bloody Sunday, when the British army killed 13 civilians during another civil rights march, happened in 1972. This is where Protestants fled from the city across the Foyle to the Waterside in the early 1970s as the city was declared Free Derry. This is the city I never visited as a child even though I grew up a mere 30 miles away, because I came from Coleraine, a Protestant town, and the one thing we knew about Londonderry – as we called it – was that it was a Catholic city.

This is the city where McCrossan is giving me the guided tour today. The divisions are not hard to see from the city walls. Look over one side and you can see the Fountain, the last Protestant estate on the city side of the Foyle, with its very visible markers of identity: "West Bank Loyalists" the graffiti reads. "Still under siege". "No surrender". Walk on round the walls and you're looking down on the Bogside, site of the Bloody Sunday shootings, where, on the roof of one building you can read the legend "Real IRA". It's not hard to read the city's past into all of this. In Northern Ireland it always is. A few weeks after I visit the city, Belfast, 70 miles away, will once again be wracked by riots. But it's been a while since Derry has seen such troubles. More than that, some here believe they can see the future coming.

The day before I arrive the city is named one of the top 10 places to visit in 2013. Derry is hoping that this year will allow it to reinvent itself. As we walk McCrossan is quick to point out not just the bitter history but the positive present. We pop in to the Apprentice Boys Memorial Hall. "I wouldn't have dreamed of coming into the hall several years ago, as a Catholic. Now I'm doing tours of it," he points out.

Change is to be found in bricks and mortar too. Within the walls there is a Georgian city that is being rebuilt and burnished. Money has been poured into the Anglican cathedral St Columb's, into the First Day Presbyterian Church, into the Guildhall. Soon the Apprentice Boys will have a purpose-built museum. New hotels have opened. Now you can walk all the way around the city's walls. For years that was impossible. "I'm very excited," McCrossan tells me. "We're on the cusp of a new dawn."

If so, it's about time. It's been dark for long enough.

Eamonn Deane meets me in the offices of the Holywell Trust, an organisation he formed in 1988 to improve cross-community relations. He's been involved in community work full time since 1973. He worked in the Bogside through the worst of times. Before that he'd been a teacher. That ended on Bloody Sunday. "When you're teaching you have to believe in what you're teaching. I know this is cliched but after Bloody Sunday, where I saw and felt and smelled the fear smack in front of my face and 15 minutes later you switch on the radio and the BBC is lying about it, it was impossible to maintain a teaching position. When I cannot trust authority how can I help youngsters to trust authority?"

When he started as a community worker there were no great ambitions. "A lot of it to begin with was just survival stuff. To make sure we're not killing each other. It wasn't at the level of contact and relationship building there is today."

But relationships are being built. How difficult is it to get the two communities to talk to each other? "Ach well, this is a small place, you know?" he says. "There are people who know each other from all sorts of things. From working together at times, or from supporting Derry City or Institute [the city's two football teams]. There's no mystery.

"It's a wee, tiny place and there's a lot of interrelationships. A lot of people falling in love, married to each other, going out drinking together. This is a very different place from Belfast. Belfast is much more savage. It's a bigger city, more impersonal. It's less clear what the connections are to one another."

Still, the city went through a lot at the start of the 1970s. Mickey Bradley, bassist of Derry's greatest band The Undertones, remembers the place that decade as a kind of "post-war Berlin". The band would walk down into the town to go to the cinema past bombed-out holes in the city fabric. "There were a lot of empty spaces. There was a great echo in William Street because there were so few buildings and Feargal [Sharkey, the band's lead singer] used to sing the line from the Flake ads: "Only the crumbliest, flakiest chocolate -" and you'd hear it echo all over the street. Looking back it was kind of bleak but it was a great environment to be in a band because there were few other distractions."

Too true. Derry in the 1970s and the 1980s was a marginal city. On the edge of Britain. On the edge of Europe. On the edge of everything. When Northern Ireland got a second university it was sited in Coleraine, not Derry. That sense of marginalisation is part of the city's psyche.

So much so that a quarter of a century later when she returned to her home city to work for urban regeneration company Ilex, Mo Durkan was told nothing was going to change in the city. "Because they'd been inured to disappointment and frustration and things going elsewhere," she tells me.

So how do you change that? How do you change things in a city that's politically divided and that has seen more than its share of violence?

Ilex decided to build a bridge.

On the morning of the launch of the City of Culture programme I walk across the Peace Bridge, as it's known, to Ebrington on the Waterside, passing cyclists, joggers and pedestrians. Ebrington, once the site of a huge army barracks, has been transformed into wide open public space. That transformation was not without problems. "You had two very distinct reactions," admits Durkan. "You had Protestants, largely on the Waterside, who were very protective of Ebrington. A lot of them had served on it, had maybe worked as ancillary workers. They had a family or friendship connection. So there was a great sense of nostalgia, of loss and of heritage. Their fear was we were going to bulldoze everything and foist ugly high-rise buildings on it.

"On the Catholic/nationalist side some people said, 'I won't put my toe over there.' You also had people say it was going to be a waste of money because nobody is going to use it. It's going to be a white elephant."

That's not how it worked out. The bridge opened on June 25 last year. More than a million people have crossed it so far. "There were queues of people to cross it," recalls Bradley. He believes it has changed the mental geography of the city. "You're walking along the river on your own side and you cross over – a small thing, but it's huge psychologically."

The bridge was part of a much larger plan for regeneration, of course. But it was symbolic. There have been a lot of such moments in the past couple of years. Ten days before the bridge opened, the city gathered in front of the Guildhall to hear the findings of the Saville report into Bloody Sunday. "In the days leading up to it there had been a tension," recalls Durkan. "It was palpable. Was the right thing going to be done by the families? When David Cameron made the apology I think the generosity of the people was shown. Everybody said, 'Whoever would have thought a Tory Prime Minister in Guildhall Square would get the biggest cheer?'

"So on the 15th of June we got the Saville report and then a month later we won the City of Culture and that really started people saying, 'Do you know what? Maybe we can do this.' It's amazing the effect one event can have on people and the place."

"There was definitely healing," agrees John Kelly, who was in the Guildhall that day. "It was like a massive dark cloud was lifted and people began to be in a better place. I believe that Saville and the day itself has added to the better future and a greater understanding of our city to the outside world."

Kelly should know. He is sitting in the Museum of Free Derry in the Bogside. The museum is designed to tell the story of what happened here. And it is Kelly's story too. Kelly's 17-year-old brother Michael was killed on Bloody Sunday. Kelly reckons there have been more than 100,000 visitors since it opened in 2007. "I've had ex-British army soldiers in here, ex-police. I've had the UVF [Ulster Volunteer Force], the UDA [Ulster Defence Association] and visitors from all over the world."

Kelly is not a bitter man. He could be but he's not. "OK, I have a problem with the British army and the British government because they murdered my brother. But I can meet anybody here and relay my story to them. What I do in here helps heal me."

If anyone could object to Derry becoming UK City of Culture you'd imagine it would be the Bloody Sunday families. But Kelly says it's not so. "I think a lot of people have come around to the idea. Our city is going to be on show all over the world. We went through a very tough time and now it's important the city is portrayed as it really is – a nice city, very friendly people."

Not everyone feels that friendliness. When I speak to William Morris of the Apprentice Boys he tells me he still believes the city is a "cold house for Protestants". There are two Apprentice Boys parades a year and he says many Catholics complain that they don't feel safe in their own city. But, he points out, for the other 50 Saturdays in a year Protestants don't feel comfortable in the city centre.

"There is a very large exclusion of Protestant culture and Protestant history. The Catholic community call it a shared city but if they're not doing anything to encourage Protestants to feel part of it then it certainly doesn't become a shared space."

Still, he concedes, things have improved. "There is a trickle of Protestants coming back to shop and socialise on the west bank, but it's a slow process."

David Latimer is one of them. He is the minister of the First Derry Presbyterian Church, which overlooks the Bogside behind the city wall. He has also become a friend of the deputy first minister and Derry politician Martin McGuinness. A big step for a Presbyterian minister. "I still get flak for it," he admits as he shows me round his church, pointing out St Andrew and the thistle that speaks of Presbyterianism's Scottish heritage. "It hasn't been easy. It would have been easier, I think, if I'd just kept my head down, but I thought there was a time being offered to us that could not be ignored."

Latimer is an optimist. "Maybe it's something that Seamus Heaney said. During even the darkest days there was always something tonic about the people of the city. In a way the Troubles started in this city back in 1968, 1969, and I think this city is a little ahead of the rest of Northern Ireland and in a position maybe to show the rest of Northern Ireland that there is a better way forward.

"You don't forget the past. But as the Queen said down in Dublin, we don't want to be bound and fettered by it."

Derry-Londonderry is a city with all the problems of any British city (or Irish one come to that). Lack of investment. Unemployment. The threat to small traders from out-of-town retail parks.

"We used to have great shirt factories," says Mickey Bradley. "People used to have jobs there. Now we don't. We have call centres. But we're not the only place to have that. What some people forget is we don't have bombs. We don't have horrible stories. On this very day in 1991, I think, Patsy Gillespie's van was hijacked and he was strapped into the van and told to drive it into an army checkpoint. And it blew up with him strapped into it. Five soldiers were killed and Patsy was killed as well. We don't have that happening now, thank God. I would take a life in a call centre if we could keep the Troubles away."

Northern Ireland doesn't change that quickly, of course. The past couple of months has seen the return of riots and death threats. The decision to fly the Union flag in Belfast only on designated days has led to a sustained and depressing return to the riots of the past. It is for the most part a Belfast thing but it should be noted that a homemade rocket was discovered in Derry in December and dissident Republican groups are active in the city.

And yet in my two days here it feels like a city that is looking forward, not backward. That's what the year of culture is all about. "Culture can and will change things," says Martin McCrossan. "When a visitor comes to the city, he has taken a flight into our local airport. Then he or she is taking a local taxi. They're then staying in a local hotel or a bed and breakfast eating local produce. Culture is all about the knock-on effect." Durkan hopes for more. She sees next year as a chance for job creation and inward investment. "Change happens and change is like a tap: once you turn it on it's hard to turn it off."

There are some with even greater ambitions. "The biggest thing is the opportunity to write a new story," says Eamonn Deane. "The story of people celebrating together and seriously looking at the whole issue of identity together and deciding what identity we should have.

"Despite all the failures, there has been a steady upward movement towards integration and respect for one another and in the last four or five years things have been gathering momentum. It has reached the point now where there's no going back."

That would be a new story. Let's hope so. Some of us are sick of the old one.

Visit cityofculture2013.com.