Somewhat to her daughter-in-law's relief, 93-year old Marie Jabaji is blissfully unaware of her new-found celebrity status. In her flat in Ramallah, where she has a view television crews and newspaper reporters alike would kill for - Mrs Jabaji's balcony directly overlooks the sombre black tomb of Yasser Arafat - the talk is all of her beloved hobby: embroidery. 'Regardez,' she says, in her ancient French, a language she must have learned during an enforced exile in Beirut. 'Les fleurs du Palestine.' She shows me some beautiful tapestries of orchids and lilies, of cornflowers and roses. Her daughter-in-law, biting on an almond sweet, laughs. 'She is very proud of her flowers,' she says. Her voice is fond, and a little bit protective.
Marie Jabaji has been a refugee for more than half her life. She left her home in Jaffa, which is on the coast of what is now Israel, in 1948, for what she thought was a holiday. Unfortunately, while she was away, the Israelis moved in, and took her house. Marie found herself homeless and stateless. At first, she remained in Beirut. A few years later, she made it to Ramallah, on the West Bank, where she has lived ever since. Unsurprisingly, she has never been able to forget her loss. 'This is how we do it in Jaffa,' she'll say, serving dinner. Under fire, her instinct is always to stay put, because who knows what will happen if she doesn't? In 2002, when the Israeli army invaded Ramallah and began reducing the compound of the PLO leader to so much rubble, it took her worried family a while to winkle Mrs Jabaji out, in spite of the tanks that were lined up in front of her house. 'Shall I bring my purple dress?' she dithered, quietly. 'Shall we take the lemons? Shall we water the plants?'

It was during this dark time - I mean this literally; the electricity lines were often cut - that the seeds of Mrs Jabaji's unlikely fame were sown. Marie went to stay with her daughter-in-law, Suad Amiry, an architect. Trapped in the house together during the long curfew hours, Marie spent her days making marmalade. Her daughter-in-law, meanwhile, began writing emails - funny, bleak emails - to her relatives and friends. She wanted them to know what life was like in a city that was effectively a giant prison. Her friends loved these emails, and began to look forward to them.

One, an Israeli, even asked if she might show them to a publisher. 'I was amazed,' says Amiry. 'I didn't really understand. I'm dyslexic. I have never thought of myself as a writer.' Soon after, however, her Ramallah diaries duly appeared between hard covers, in a Hebrew edition. Entitled Sharon and My Mother-in-Law they were a critical and commercial success.

Sharon and My Mother-in-Law has since been translated into 11 languages (it is ironic that no edition in Arabic is yet available - though at least this means that the mother-in-law has not yet read the book). It is published in Britain this month, and was the subject of a recent bidding war in the US. In France, it is a bestseller. In Italy, its author won the prestigious Viareggio prize (former recipients: Italo Calvino, Primo Levi, Umberto Eco). That there is such an appetite for a book about this most serious of issues, the occupation, is something of a surprise - until, that is, you pick it up and start reading. Ordinarily, books about Palestine fall into one of two camps: the boringly political (unless, of course, you are into dates and accords and UN resolutions), or the highly lyrical (and to many western ears, these existential accounts of the diaspora, however beautiful, however rich, are hard going - like wading through jelly). But Sharon and My Mother-in-Law is different. In a place where the absurd is a feature of daily life, it takes a particularly sane sensibility to delineate it - and, for all that those around her may be losing their heads, I have rarely met anyone as sane as Suad Amiry.

She was born in Damascus in 1951, her own family having fled Jaffa at about the same time as Marie Jabaji. Her mother ran a printing press; her father was later the Jordanian ambassador to Egypt. After studying for a degree in architecture in Beirut, in 1981 she accepted a job at Birzeit University, a position that was all part of her 'grandiose plan' to live in Ramallah (it was in Ramallah that she met her husband, Salim, sociologist and Mrs Jabaji's adored only son). In 1991, she was a member of the Palestinian delegation at the Washington peace negotiations, and in 1996, she was made deputy minister of culture in the first Palestinian government. These days, she runs a remarkable (and unlikely, given the destruction that surrounds her) organisation called Riwaq: the Centre for Architectural Conservation. In 2002, Riwaq's work on the market in the old town of Hebron received the Aga Khan Prize for Architectural Restoration - a triumph it took the Israeli army just two days to dismantle. She is also the author of several esoteric architectural volumes.

Amiry is the antithesis of what most in the West imagine to be a 'typical' Palestinian woman. She drinks, she smokes, she does not cover her hair. She does not have children - 'I never felt strongly about it' - though her tiny terrier, Nura, travels with her wherever she goes. Of course, travel is not something in which one can indulge overmuch should one happen to be a resident of Ramallah. After years of battling - seven to be precise - Amiry was finally awarded Palestinian identity. These papers, however, will not allow her to visit Jerusalem, which is only 10 kilometres away, and excursions to other West Bank towns such as Nablus or Bethlehem are all but impos sible (thanks to the Israeli checkpoints that now stud the area, each West Bank town is an isolated unit; journeys that should take 40 minutes can last up to three hours, and even then there is always the risk of gunfire, from soldiers or from Israeli settlers). 'You know there will be hassle somewhere, and you are not always up to it,' she says. 'You acquire the psychology of the prisoner. Many times, I end up happier to sit at home and do nothing. Even young people feel the same.'

As a writer, Amiry is adept at conveying this particular psychology: apathy, lethargy and mild anxiety creep in first, to be followed, periodically, by anger, frustration and depression. Occasionally, however, something else bubbles up: a kind of hysteria. In one section of the book, Amiry and Salim are caught driving their car during the curfew. Made to stand in the rain while the soldier examines the contents of their shopping bags, Amiry decides to stare at him, unblinkingly, like some psychotic camel. Unnerved, the soldier takes Salim to see his superior. 'His wife was staring at me,' he announces, a complaint that sounds ridiculous even to a highly nervous Israeli commanding officer. On the way home, Amiry is rendered almost insensible by laughter. 'I laugh, but these things are not funny,' she says. 'This is a tragedy we have here. There is a disaster going on in this part of the world.'

On a prosaic level, Amiry despises the things any of us might object to were we living with an invading army: the restriction of movement, the uncertainty, the sheer impossibility - sometimes - of getting the groceries in. In a city of 70,000 people, an hour-long lifting of a curfew does not for easy shopping make. And then, of course, there is the problem of her mother-in-law, who will eat only at certain times, and off certain-sized plates. 'Perhaps one day I may forgive you for putting us under curfew for 42 days,' she writes to her tormentors at one point. 'But I will never forgive you for obliging us to have my mother-in-law for what seemed, then, more like 42 years.'

The prosaic, however, is often strangely elusive in Palestine. Amiry tells how her friendly neighbourhood collaborator makes her a present of a huge, electrified tableau of Mecca. She falls deeply in love with this gift: with its glittering red and green lights, it is too kitsch to resist. Later, though, she becomes convinced - who knows why? - that it has been bugged by Mossad. She ends up by hiding it in the attic; not even a leftist like her feels able to put out Mecca with the garbage.

She is aware that, in terms of both style and content, Sharon and My Mother-in-Law is in a minority of one, and it delights her. 'Salim loves the book now, but at the beginning, he was nervous about exposing our private lives, about telling people that we have a cappuccino machine, and a dog. "Our friends," he said. "Maybe you don't have the right to write about them in this way." But I felt that, either I write it, or not. I'm not here as a historian to write one more book about Palestine.' Does she feel that she is bringing her world to a new audience? 'Yes, and it's exciting. When you live here, it's easy to feel hopeless. You wonder how you can resist the occupation [she is entirely opposed to violence on the part of civilians]. Then this book comes along, and I think: ah, so this is how I resist the occupation. I have never felt so happy in all my life.' She flashes me her dazzling smile. Then, before we venture out into the teeming, pot-holed Ramallah streets, she gets up to make me yet another dainty cup of sweet, scented Turkish coffee.

Amiry likes to remind people that things always look worse from afar - and so it is with Ramallah. Last week, as Mahmoud Abbas was elected president, the city was in the newspapers every day and, as usual, it looked grim, all rubble and graffiti and young men with guns. The reality is a bit different, though there are big piles of stones absolutely everywhere - Suad often jokes that she dreams of being made the Palestinian 'Minister of Rubble'.

For one thing, the town, which used to be 60 per cent Christian (this figure is now down to 30 per cent), is the most liberal in the West Bank by far. 'Never a masculine or a solemn city,' writes the great Palestinian poet, Mourid Barhouti. 'Always the first to catch on to some new craze.' (Or, as one of Riwaq's energetic young architects puts it: 'This is a city where you can have lunch in a restaurant with a woman who is not your wife.')

For another, there is a certain amount of money sloshing around it. A severe shortage of land - for obvious reasons, the city cannot expand - has pushed the cost of housing sky high. While many still live in abject poverty, and in refugee camps, the smartest new houses in Ramallah cost as much as $500,000. Such places are, I gather, snapped up by entrepreneurs who believe the city to be firmly on the up. (I went to see one; it had been bought by a man from Jaffa, a town he can see from the window of his elegant new home, but which he can never visit.)

With its cypress trees and pleasantly cool mountain climate, Ramallah was once considered one of the most beautiful towns in Palestine, and was much visited by both Gulf Arabs and Palestinian honeymooners. Today, it is congested and run down. 'I am not upset with the Palestinian authority that they did not beat Sharon,' says Amiry, 'I'm upset with them that they did not manage schools, jobs, hospitals.'

Still, vestiges of the old style remain. Riwaq, for instance, is housed in an elegant turn-of-the-century building of rose stone and wrought iron. Are there restaurants and cafes and bars? Is there culture? Do tourists care to visit? The answer to all these questions is: yes. You can have fajitas and cocktails at a new place called Frescoes or, for traditional Arab food, you can visit the town's smartest restaurant, Darna, the refurbishment of which is rumoured to have cost its owner $800,000. The Khalil Sakakini cultural centre, meanwhile, which houses the office of the poet, Mahmoud Darwish, has also been restored (it was destroyed by the Israelis). As for visitors, Ramallah has always been a popular destination for political tourists; and, right now, the place is full of journalists, election observers and the usual NGO people.

Amiry lives in a book-stuffed, single-storey house in the al-Irsal area of Ramallah, and drives a battered Golf (thanks to the potholes, most people do not invest in new cars, though there are still a significant number of shiny Mercedes to be seen). In the street outside, you can see the marks left by the Israeli tanks. She says that her attitude to the soldiers is gradually changing.

'Maybe this is middle age, but before, I never, never looked at their faces, even when they were checking my identity. If you're upset with someone - even your mother or your brother - you can't look at them. It's a way of showing that you're not happy. Now, I've started looking at their faces. You think, "You're so young. Dammit, you could be my son." I talk to them. If I get the chance, I make a comment. "Are you enjoying your work?" I'll say. One time, I was crossing the bridge [the Allenby Bridge into Jordan - the only way she can leave the country]. They take all your shoes and they put them into a bag. Then you have to look for them. Of course you get annoyed, humiliated. So I said to this woman, "Do you enjoy this?" She freaked out. "Do you think I enjoy it?" she said.'

Does Amiry believe there will be a lasting peace? Strangely, she does. She thinks people - on both sides - are tired of fighting, and that those involved are aware of the price that they pay in other aspects of their lives. 'I don't believe that you can be violent to people that you don't know and be nice to your family. It can't be done. No, if the solution is not yesterday, it will be today; if it is not today, it will have to be tomorrow. You do feel there will be a solution. It will have to come.'

Her hope is that the West will be supportive of Mahmoud Abbas in the coming months; if not, a vacuum will appear, one that might easily be filled by Hamas. 'We have worked very hard to try and convince people that the two-state solution is the right solution. But if your house is being demolished, it's hard to be told to negotiate. If the West doesn't give Abbas a chance, support for Hamas will grow. It's difficult to hold on to your morals if you are under continuous attack.'

It is time for me to leave now: the poor woman has been making me hot drinks and feeding me kanafe - cheesecake - for two days. This time, I must brave the Qalandia checkpoint alone, on foot (I arrived in a car, driven by the only one of Amiry's colleagues who has the right papers for Jerusalem - though as she takes great delight in pointing out, Nura, her dog, has Jerusalem papers; if only dogs could drive, eh?). She drops me in the chaos, and shoves a box of sticky pastries into my hand, picked up last night in the incongruously named Eiffel Tower sweet shop. Off I troop, in the cold and the rain, horns honking loudly in my ears. My bag is heavy, and the queue is long; women and children must form one line, men another, and only so many are allowed through at a time, for apparently arbitrary reasons. Is it scary, all this being shouted at by men with guns? Not really. Mostly, it is just bloody maddening. Soon, I am in a very bad mood.

If I lived here, I think to myself, I would emigrate, and fast. But, of course, things are not quite that straightforward. Before we set off down the world's worst road - it makes your bones ache just thinking about traversing the route out of Ramallah, which closely resembles the surface of the moon - I had asked Amiry if she'd ever thought of leaving the city. After all, before 1981, all she knew of Palestine was what she had dredged from the memories of her parents. She laughed at this, though she admits that she now summers in Italy, so as to enjoy a little visual respite from all the concrete. 'No, I never think of leaving,' she said. 'It is who I am. I have a certain sensibility, a certain sense of humour. I belong to Palestine culturally. I'm like a flower in its natural habitat, or an indigenous tree.' In any case, if she were to leave, who would keep an eye on her mother-in-law?

· Sharon and My Mother-in-Law: Ramallah diaries is published by Granta, £12.99. To order for £12.34, with free UK p&p, call the Observer Books Service on 0870 836 0885 or visit www.observer.co.uk/bookshop