SULAIMANIYA, Iraq, Apr 24 (Reuters) It's midnight and the restaurant on the top floor of the Sulaimaniya Palace hotel, with its panoramic views, is buzzing.

Seven storeys below, the streets of the Kurdish city are still busy and couples walk in the light of the full moon.

This is Iraq. But it's a world away from the claustrophobic concrete blast walls and bloodshed of Baghdad far to the south.

Kurds boast that rents in Sulaimaniya now outstrip London.

Whether it's true is hardly relevant -- the boast itself symbolises the vibrancy and optimism that separate most of Kurdistan from the rest of strife-torn Iraq.

Sher Mohammed, 55, is typical of the new elite in Kurdistan. A former peshmerga guerrilla, he fled for the safety of London in 1990 and made a small fortune with a Mongolian restaurant.

Now he has come back, with an eye to starting a Kurdistan wine industry and luring foreign tourists to the stunningly beautiful, soaring rocky mountains.

''Twenty years ago, people went to Europe, to the United States, overseas,'' he said at his ''Freedom Castle'' mansion overlooking a small hill where he once lived for months at a time in a cramped, dirty cave, fighting Saddam Hussein's army and its chemical weapons.

''Now, in the three years since Saddam Hussein fell, they are coming back and bringing their money.'' STABILITY, SECURITY Not only Kurdish expatriates are moving in. The Sulaimaniya Palace has been taken over by a Lebanese company; a Norwegian outfit is looking for oil; Turkish, British, Chinese, Iranian and other multinational firms are looking for bases here.

Kurdistan is selling itself as a safe and secure base for companies that want to do business in Iraq but fear the insecurity and cost of setting up in Baghdad.

''We have stability. We have security,'' said Omar Fatah, Kurdistan's deputy prime minister and the prime minister of the Sulaimaniya sub-region, sitting in another restaurant overlooking the lights of the sprawling city.

''Companies should come here and set up. We have good infrastructure. Kurdistan is the ideal place for companies who want to set up and do business in Iraq.'' Kurdistan has enjoyed 15 years of relative calm and prosperity.

It has been semi-autonomous since a failed uprising against Saddam Hussein in 1991 that led the United States and Britain to impose a no-fly zone, keeping out the Iraqi army.

The region offers tax breaks to companies, profits can be transferred out of Kurdistan and foreign companies can own land.

It also has oil. Norwegian company DNO announced this month it will start producing oil next year near the Turkish border.

The Kurdish parliament will soon vote on a proposal to establish the region's own natural resources ministry to deal with its oil and gas reserves, marking a further step in economic autonomy from the Arab south.

The main highway from Sulaimaniya to the disputed oil city of Kirkuk, just south of Kurdistan, is lined with new construction sites and piles of new bricks.

But the prosperity driving Kurdistan's cities does not reach its villages. The young are leaving the villages in search of work.

Away from the highway even moderately well-off villages have not a single shop or roadside stall.

''We don't have enough food,'' complained Rashid Karim, an 80-year-old former peshmerga in the village of Sekanian Sheik Bakh, a few kilometres from Sher Mohammed's mansion and vineyards.

''Our life is getting better, but we don't have enough food.

We don't have a school, either.'' REUTERS CH RK0920