By Ayla Jean Yackley
FAMAGUSTA, Cyprus (Reuters) - Barbed wire and concrete-filled oil drums surround Maria Riri Myles' family apartment in a snake- and rat-infested no-go zone of northern Cyprus occupied only by patrolling Turkish soldiers. But it still feels like home.
"If there was a solution, even at my age, I would go back in a shot," said Myles, 58.
Myles' hometown of Varosha, now an eerie collection of derelict high-rise hotels, churches and residences, once drew luxury-seeking Hollywood stars like Paul Newman and Elizabeth Taylor. Deserted since a 1974 war that split the island, it is now the ultimate bargaining chip in the decades-long stand-off between Greek Cypriots and Turkish Cypriots.
Cyprus has been ethnically separated since Turkey invaded on July 20, 1974, and seized the northern third of territory, five days after a Greek Cypriot coup aimed at union with Greece.
Varosha, part of the ancient port town of Famagusta, was taken in a second operation on August 14, after a ceasefire. Mindful of United Nations resolutions barring resettlement, Turkey fenced off the six square km (2.3 sq miles) area, leaving it to rot.
In recent months, both sides have mooted re-opening Varosha, with its white sand beaches, to help break a deadlock in U.N.-backed reunification talks between Demetris Christofias, president of Cyprus, and Dervis Eroglu, the head of the breakaway Turkish Cypriot region.
This month Cyprus became the European Union's six-month rotating president, though the EU mandate in practice does not extend to a northern sector recognized only by Ankara.
Turkey, its own EU candidacy hamstrung by the Cyprus conflict, has said it will freeze relations with the presidency until January 2013, despite objections from EU authorities.
Varosha is hostage to the stalemate.
Imprisoned behind rusting chain-link fences, Varosha is a no man's land, overrun by cacti. Signs of soldiers bearing guns warn off photographers.
The shutters of Myles' apartment, set on the road circling the sealed sector, are flung open, dangling from their hinges.
"All you can see are empty walls inside. There is nothing left of our old life," she said. "When I saw it again for the first time, I had very little hope of ever returning."
Myles and other Varoshians have had their hopes of returning dashed many times before. The Cyprus dispute defies decades of settlement efforts, generations of diplomats.
"It has been so long, it will be difficult for Turkey to give Varosha away but it would surely help solve the Cyprus problem," said Hugh Pope of International Crisis Group (ICG).
"There is a failure of imagination in the negotiations from both sides," he said. Opening Varosha would "be a way for Cypriots to get to know and understand each other better. It will take some of the sting and poison out of the relationship."
Last month Christofias offered to lift Cyprus' veto on EU policy chapters - the areas Turkey must negotiate to advance its membership bid - in exchange for Varosha opening under the UN.
Egemen Bagis, Turkey's minister for EU affairs, rebuffed that offer in an interview with Reuters in June. "We will not play our trump card to open a chapter," he said.
After Turkish forces put Ankara in such a strong negotiating position in the 1970s, few would have expected it to tarry so long in turning military to diplomatic advantage. Some might say the trump card has been lost.
But still, people close to the matter say Varosha remains on the table and could be key to ending the impasse.
Opening Varosha "could be discussed as a way to build confidence," Turkish Cypriot Foreign Minister Huseyin Ozgurgun said. "But no one really wants to touch this issue. There are UN resolutions. Whatever happens with (Varosha) it will create problems so no one wants the responsibility."
As Greek Cypriots wrangle with a banking crisis [ID:nL6E8I44B7] and await a February presidential election in which Christofias has said he will not run, little progress can be expected on Varosha, or any aspect of the peace negotiations, said Erol Kaymak, an adviser to Eroglu and a political scientist at Eastern Mediterranean University in northern Cyprus.
Yet the incentive for Turkey to hold on to Varosha is fading after the European Court of Human Rights in January ordered Ankara to pay about 20 million euros to 13 hotel and other business owners from Varosha for loss of use of their property.
"Why pay for something when you can't keep it or use it?" Kaymak said. "Varosha is a liability for Turkey."
He said that if the Turkish side were to open Varosha, it would likely be under the north's administration and would be in exchange for a lifting of a ban on direct trade with Turkish Cypriots - something Greek Cypriots have always resisted.
The cold war between Turkey and Cyprus flared anew in 2011, when the latter announced offshore natural gas finds that could make it self-sufficient for 250 years. Fearing Turkish Cypriots would be deprived of their share, Turkish Prime Minister Tayyip Erdogan accused Cyprus of "oil-exploration madness" and sent naval ships to the eastern Mediterranean.
Despite the tough rhetoric, the promise of vast riches could spur the sides to agree on a way to develop and transport the fuel, a stepping stone towards a broader settlement.
Meanwhile, Varosha rots.
Large slabs of concrete walls from hotel blocks have crumbled away to reveal elevator shafts with snapped lines. The towers cast long shadows over the sparkling turquoise waters of the eastern Mediterranean.
Of Famagusta's 16 km of beach, just 200 meters are open to the public, while the rest is militarized or part of an underused sea port, according to Okan Dagli, 47, of the Famagusta Initiative, a Turkish Cypriot group that supports the return of Varosha and the opening of a seaport that handled about half of all Cypriot trade before 1974.
Now the port is a collection of dilapidated customs offices and unused depots outside of the 16th-century Venetian walls of Famagusta, the setting for Shakespeare's "Othello".
"This is a melancholy place, the world's only divided city in which one half is alive and the other is a ghost town," said Dagli. "Our economy is at its worst in 40 years, our population is not growing. Giving Varosha back means saving Famagusta."
On Facebook, Turkish soldiers and intrepid trespassers post photographs of abandoned homes and businesses. In one, crates of empty KEO beer bottles are stacked in a blue-tiled restaurant kitchen next to tins of food scattered on a dusty work surface.
A former soldier described raiding the Golden Sands Hotel bar when his Turkish officers needed new glassware.
The sealed-off area includes 100 hotels, 5,000 houses and business, museums, churches and schools, the ICG reported.
Rebuilding Varosha could cost up to 100 billion euros, said Nicos Mesarites, head of the Greek Cypriot reconstruction board.
Battered by the elements as it was left to crumble, the environment is likely toxic and the infrastructure - the power grid, sewer system, roads - is wasted, he said.
"It has been completely taken over by nature. You would need an army to rebuild it."
Estranged Greek and Turkish Cypriots had already lived apart in Famagusta for more than a decade before the 1974 invasion.
As Cyprus' guarantor, along with Britain and Greece, Turkey says it had to intervene after the Greek Cypriot coup to prevent intercommuncal bloodshed, which plagued the island in the 1950s and 1960s. Some 800 Turkish Cypriots went missing after 1963.
As many as 5,000 people, mainly Greek Cypriots, died in the invasion, and some 1,600 Greek Cypriots are unaccounted for.
Nicos Karoullas, whose father owned a pharmaceuticals company, was 15 when Turkish troops stormed Varosha. He left behind a plate of water melon and halloumi cheese on the table.
"We took no clothes, nothing. Even though there was war, it never occurred to us we would not return," he said.
"We were 43 people sleeping on the floor when we left."
Years of financial hardship awaited his family, like other refugees. Varoshians preserved their social ties, holding class reunions and electing a mayor and city council, to which Karoullas belongs. They are proud of displaced football club ?northosis Famagusta and its 13 league titles.
Famagusta Mayor-in-Exile Alexis Galanos, 71, does not like to travel to the north, troubled to see his family's factories in the hands of a Turkish Cypriot and offended by having to show a passport to travel there after authorities began allowing Greek Cypriots to cross the border in 2003.
"It's like the war against our town has not ended. When I saw Varosha, I felt the wind was shouting: 'How could you leave us like this? How could you abandon us?'" he said.
But Karoullas crosses almost every week, often to meet a Turkish Cypriot friend for a lunch of meze and raki liquor.
He said he would consider returning to Varosha under Turkish Cypriot control, seeing it as a test for eventual reunification.
"We feel guilty because we want to return. The most natural thing in the world is to want to go home," Karoullas said.
(Editing by Ralph Boulton)