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The gleaming skyline of Panama City.

From the Casco Viejo district, a traveller's photogenic fantasy come true, to Mercado de Mariscos, a popular seafood stop, the Central American seaside capital has re-emerged as a favourite tourist destination, and locals are thrilled

I caught my first glimpse of Panama City's skyline at dusk. After exiting the canal and passing under the Bridge of the Americas, we left behind the jungles of Gatun Lake and the Canal Zone. The first building to catch my eye was the vibrant Frank Gehry-designed Biomuseo (Museum of Biodiversity). A short time later, the rest of the city came into sight: The towering white buildings glowed with a pink hue, giving the impression of a modern utopia.

The look was in direct contrast to the Panama of my memories. That Panama of 20 years ago throbbed with grime and danger. The memory that endures is of a hot-tempered taxi driver (in even hotter weather) speeding through dodgy neighbourhoods before finally admitting we were lost.

Being lost back then was cause for concern. But the city on the horizon appeared to be something completely different.

Until recently, Panama City brought to mind the global shipping industry and the imprisoned cocaine-trafficking dictator Manuel Noriega.

But the seaside capital has re-emerged as a favourite tourist destination. There's that gleaming new skyline; Casco Viejo, the colonial-era quarter where centuries-old ruins are being transformed into hip hotels, art galleries, cafés and microbreweries; as well as a slew of refurbished parks and museums.

I have to admit the whole thing came as a bit of a surprise.

My first inkling the city had changed came during our canal transit. Visiting the canal is a highlight for most people who holiday in Panama and I've been fortunate enough to transit it twice, on our first and second boats. Unlike travelling by cruise ship or tourist boat, being on a private vessel going through the canal is a busy experience that requires all hands (plus a few extras) on deck.

Passing through the Panama Canal.

For the two-day passage from the Caribbean to the Pacific, local expats Diane and Russ joined our family of three as volunteer line handlers. Between the hectic moments, which involved securing ourselves in each of the six locks with four heavy mooring lines as water flooded in or out of the chamber, lifting or lowering us about 10 metres, Russ and Diane told us about what had attracted them to Panama.

Initially, they'd simply been interested in the canal. And as I watched the turbulent mixing of salt and fresh water bubble toward the steampunk-looking gates, I understood their fascination with the engineering marvel. But as we travelled the 77-kilometre waterway, our guests began interspersing details about their life in Panama City between stories and facts about the canal itself.

After pointing out the tracks for the historic Panama Canal Railway, they mentioned the city's beautiful new metro system. While sailing past the verdant jungles of Gatun Lake, they mentioned biking in the city's parks. When I served up lunch to our crew, they talked about the great food options found in different neighbourhoods. The Panama City they were describing sounded stylish, fun and very liveable. It sounded just like that radiant city on the horizon looked.

Intrigued, we decided to explore.

Casco Viejo was our first stop. Settled in 1673 and designated a World Heritage Site in 1997, the old quarter is that seldom-realized traveller's fantasy: an authentic place on the cusp of becoming the next hip thing. It brings to mind the walled city of Cartagena, Colombia, and the narrow streets of Old Quebec; churches, museums and impeccably renovated colonial mansions sit elegantly between a photographer's dream of ruined buildings still adorned in wrought iron and faded paint.

Anchored by the American Trade Hotel, which opened late in 2013, the oceanfront neighbourhood has had a steady influx of welcoming new businesses setting up shop in the long-neglected architecture.

There were cute cafés galore, but it was the Iglesia de San Jose that first tempted us off the streets and out of the 30 C heat. In the gloom of its interior, we discovered that the intrigue of colonial Panamanian history far predates the canal. Home to the Altar de Oro (Golden Altar), which is rumoured to be the sole relic salvaged from Panama Viejo after the city was sacked by Henry Morgan in 1671, the church reminded me that the visual feast of the past is made even richer with its stories.

Walking in Casco Viejo.

Happily, some excellent museums are found in the Casco. There's the Canal Museum, the Museum of National History and the old cathedral, with its spires inlaid with mother-of-pearl. Then there's the Santo Domingo monastery; its centuries-old Flat Arch helped convince canal engineers that Panama was earthquake-proof.

We spent the day wandering streets populated with shaved-ice vendors, musicians and kids playing soccer. When we got hungry, Rene Café served up an affordable four-course lunch of local specialties (including pork in a red sauce and sea bass) in a pretty setting. When it grew too hot, there were shady plazas to explore. When rain threatened, there were those museums.

From the Casco, we walked along the Avenida Balboa promenade to the Mercado de Mariscos (seafood market). As we approached, I caught sight of the traditional fishing boats contrasted against the glittering modern city. I made a beeline and joined locals and tourists photographing the scene as the sun set. But it was the more than 70 open-air restaurants that made us return more than once. A popular postwork stop for locals, you can choose your own seafood and have it traditionally prepared, or visit one of the ceviche stalls, where a big serving of fresh (and oh-so yummy) ceviche and beer for two comes to less than $5.

The people-watching was free.

With our urban exploring well under way – we even made a stop at Albrook Mall, Latin America's largest shopping centre – it was time to head into the wild. The city has a variety of excellent parks to choose among, but the Smithsonian's Punta Culebra nature centre was an easy choice. The small park is located on the Calzada de Amador, a five-kilometre causeway linking four islands which juts out into the Pacific and is popular with walkers and cyclists.

Culebra has a large wild sloth population as well as a variety of marine exhibits including turtles and sharks. We spotted our first of three sloths shortly after paying our $5 admission fee. As we wandered the humid jungle trails, youth volunteers eagerly pointed out other highlights.

Back on the causeway we played tourist – there are bikes, buggies and skates to rent and an assortment of shops and restaurants to explore. With our new wheels we headed to the Biomuseo. The topsy-turvy building is an attraction itself. Built in a garden setting that's perfect for watching shipping traffic, the building also houses a free photo exhibit detailing Panama's history.

When it was time to see more, every Panamanian we spoke to was eager to share their insider secrets – and we quickly developed a "must-do" list ranging from ancient ruins to rooftop bars that would have taken months to work through. It seems locals are thrilled with how their city has evolved – and rightly so. We should all live in a place that not only becomes more beautiful but also safer, cleaner and more welcoming.

The Frank Gehry-designed Biomuseo.

Panama City excursions

No visit to Panama City would be complete without a few day trips:

  • Guna Yala: Also known as San Blas, the indigenous Guna self-govern 365 dreamy tropical islands.
  • Panama Canal Railway: Built in 1855 for the California ‘49ers coming from the East Coast on their quest for fortune during the Gold Rush.
  • Canal excursions: Choose between simply viewing the locks or partial and full transits.
  • The jungle: Parque Soberania, Parque Chagres and Parque Metropolitano allow for hiking, birdwatching and fishing in the rainforest.