By Alexandra Hudson
JENA, Germany (Reuters) - Twenty years ago in the drab pre-fab housing blocks outside the east German town of Jena, swaggering youths gave Sieg-Heil salutes and flaunted their far-right views, as the structures of the only state they'd ever known crumbled around them.
Among them were three local teenagers, Beate Zschaepe, Uwe Mundlos and Uwe Boehnhardt, whose racist hatred would fuse with a militancy not seen before in the neo-Nazi scene.
The series of murders laid at their hands have profoundly shaken a country that believed it had learned the lessons of its past, and reopened an uncomfortable debate about whether Germany must do more to fight a far-right fringe it had thought to be small, mostly non-violent and contained.
Already known to police for their hate crimes - such as hanging a doll bearing the sign "Jew" from a motorway bridge - the trio slipped underground in 1998 to found a cell known as the National Socialist Underground (NSU).
The NSU would go on to wage a seven-year racist killing spree across Germany, utterly undetected.
Zschaepe, the only surviving member of the trio, is due to go on trial in Munich next week, charged with complicity in the murder of eight Turks, a Greek and a policewoman, two bombings in Cologne, and 15 bank robberies. Four others charged with assisting the NSU will sit with her on the bench.
"Initially Beate was a young, friendly girl," said Thomas Grund, who still works at the Jena youth club they attended.
"Then she got together with Mundlos, a different type, who wore combat boots and parted his hair on the side (like Hitler). Then she changed."
The existence of the NSU only came to light by chance in November 2011, when Mundlos and Boehnhardt committed suicide after a bungled bank robbery and torched their caravan in the eastern town of Eisenach.
Realizing the game was up, Zschaepe allegedly set fire to a flat she shared with the men in Zwickau, 180 kilometers away, and fled, after asking a neighbor to look after her cats Heidi and Lilly. Four days later she turned herself in to police in Jena.
In the charred remnants of the caravan police found the gun used to murder all 10 victims. They also found a grotesque DVD presenting the NSU and claiming responsibility for the killings. In it the bodies of the murder victims are pictured while a cartoon Pink Panther tots up the number of dead.
Photos of the trio as rebellious looking teenagers, or on holiday at the Baltic Sea have mesmerized and horrified the public. They appear so normal.
For their victims' families, who for years were suspected by police of being linked to the murders themselves, learning the truth has brought scant comfort.
Since the cell was uncovered there have been a stream of revelations about how authorities missed chances to apprehend the gang, bungled investigations, failed to share information with each other, and displayed an entrenched disregard for the far-right threat.
"Police and domestic intelligence are not institutionally racist, but there are racists working for them," said Sebastian Edathy, the Social Democrat lawmaker leading a parliamentary inquiry into the NSU.
Authorities had focused resources on Islamists, and at times appeared more concerned with protecting their informers than the general public, he added.
In the wake of the NSU's discovery, Germany's domestic intelligence agencies are undergoing an overhaul.
Troubling questions over how the NSU members could develop such hate and go unchallenged for so long, have sparked guilt and recriminations in Germany, nowhere more so than in Jena.
Some, including the domestic intelligence agency, see the NSU trio as the product of a unique set of circumstances, when the collapse of communist East Germany wiped out whole industries and workforces, leaving a generation of youngsters rudderless, and their parents too bewildered to raise them.
Today in Winzerla, the suburb of Jena where the trio grew up, buildings once daubed with swastikas have been spruced up, young mothers and their children stroll the streets, and the combat boots are gone.
"We did have a problem here. Young people were at risk of falling in with the far right," said local mayor Mario Schmauder. "Not anymore."
"They were looking for something to believe in. You'd see people in combat boots, bomber jackets, with shaved heads, giving salutes. Others would cross the road to avoid them, and the youngsters mistook this as a sign of their power."
The NSU trio were an anomaly, he said, explaining how huge efforts had been made to take youth groups to Auschwitz so they learned about Germany's Nazi past.
But in the centre of Jena, school teacher Harald Zeil, a spokesman for the "Aktionsnetzwerk Jena", which campaigns against the far right, says the threat is still very real, as is the tendency to look away.
"The discovery of the NSU confirmed our worst fears about the potential for violence," he said. "As to the reasons, yes there was a social collapse back then in the 1990s, but there are still many areas where the far right are still very strong. There is a culture here of ignoring, looking the other way."
He also sees a pervasive hostility to foreigners that the far right feeds on.
A high-profile study by the Friedrich Ebert Foundation in 2012 found xenophobia still deeply rooted in German society. Within the former East, 15.8 percent display far-right thinking, a significant increase on to two years earlier. In the former West it is around 7 percent.
In 2011 German authorities estimated there were 23,400 far-right adherents in the country, down slightly from the previous year, though the number of those considered violent rose a little to 9,800. "Neo-Nazism is younger, more violent, more militant," a report warns.
The far right ranges from members of the National Democratic Party (NPD), which has lawmakers in two regional assemblies, to militant cadres, including the emerging "autonomous nationalists", who are often indistinguishable from left-wing activists.
At the "Paradise" train station in Jena, a scrawny teenager in black clothes stands waiting for a train, inconspicuous and ignored. Only a trained eye would notice the "28" on his track suit, a reference to the second and eighth letters of the alphabet, "B" and "H", standing for Blood and Honor, the motto of the Hitler Youth.
(Editing by Noah Barkin and Will Waterman)