“People from all over the world came to Berlin because it was so empty,” Lybke recalls of the early ’90s. “No lamps in the street. No hot water. No telephone. Nothing. You woke up and said, ‘What am I this day? Okay, I am a filmmaker, so let’s make a film!’ ” Back in the ’80s, Lybke himself had awakened as a gallery owner involved in nonconformist art in the East German city of Leipzig, a role that helped him get started in a big way in Berlin with such Leipzig School artists as Neo Rauch, Tim Eitel and Uwe Kowski.

“It started changing a lot after 1996,” Lybke says, “and nowadays that old underground chic works in parallel with a new bohemian bourgeois. There’s more singing about money. In that way, Berlin has moved to becoming a normal town.” Lybke’s own success has enabled him to turn his original gallery back in Leipzig into a palatial showplace, but he makes a point of keeping his main gallery, on the Auguststrasse, as low-key as any on the street, almost as though there were an ordinance against glitter.

Across town, in west Berlin, tradition reigns. West of the Tiergarten park and the Kaiser Wilhem Memorial Church, whose bomb-shattered bell tower stands as a reminder of World War II, the leafy avenues of Charlottenburg are as upscale as they’ve always been. Think Madison Avenue as opposed to the Auguststrasse’s funky East Village. Some successful artists make their homes here and almost apologize for it. “Charlottenburg is bourgeois as hell,” British-born film artist Tacita Dean told a New York audience last year. “But, my, it’s very comfortable.” Other prominent artists who call Berlin home include Denmark-born Olafur Eliasson, Italy’s Monica Bonvicini and Canada’s Janet Cardiff.

Charlottenburg, too, displays evidence of the protracted east-west divide that Berlin Senate arts coordinator Ingrid Wagner calls “the enduring Wall of the mind.” By this, she means in part the paradoxical way in which east Berlin, whose artists were forced to toe the line of Socialist Realism before reunification, has maintained the spirit of its old dissident culture, while west Berlin has perpetuated its traditionalist orthodoxy. While Berlin was divided, “we remained stuck in figurative realism in the West,” says Wagner, who taught at the University of Art in the British sector in those years. “We didn’t know just how isolated we were.” Today the spacious showrooms along Charlottenburg’s Fasanenstrasse are filled with mostly 18th- and 19th-century  and modern art, especially Expressionist works. And in the stately 19th-century mansion that houses Villa Grisebach, Berlin’s premier auction house, such works are gaveled down for millions of euros. On the November day last year when August Macke’s 1914 Woman with a Parrot in a Landscape fetched €2 million ($2.9 million) at the house, Jorge Carrera, a Paris-based dealer on his first visit to Berlin, grinned happily over his own €135,000 ($195,000) acquisition of a 1958 Jesús Rafael Soto for a Miami client. “I had no idea of the extent of the art market here,” he said. “The whole city has a magic—also a dark magic that seems to emanate from its history.”

That magic continues to lure top-drawer international galleries such as New York’s Goff + Rosenthal, London and Zurich’s Haunch of Venison, and Lugano and Cologne’s Buchmann Galerie, which have all set up branches in Berlin. The trend has been under way for two years, as leading Berlin artists increasingly insist that their dealers be on hand to exhibit them in the city. Even galleries not subject to such pressure are showing up, such as Stockholm design and decorative arts firm Jacksons, whose Berlin branch opens this spring in a new gallery building near Daniel Liebeskind’s groundbreaking Jewish Museum, in the Kreuzberg. Other tenants will include Galerie Nordenhake, Dresden’s Lehmann Brothers and Norway’s Galleri Opdahl. Some collectors are also arriving. Dieter Rosenkranz, a Wuppertal industrialist and philanthropist who collects modern art, retired to Berlin two years ago and is single-handedly financing the White Cube construction.