On A cool January morning, the sky above the Theban hills is a crisp, deep blue. Outlined against it is the jagged profile of the pyramid-shaped mountain known as el-Qurn.

It is here that the pharaohs chose to embark on their journey to the afterworld, digging their tombs deep into the dun-coloured limestone.

And it is here that six young men managed to perpetrate one of modern Egypt's worst atrocities when they shot and hacked 68 people to death in Hatshepsut Temple last November.

In one of the many shadowy crevices behind the final resting place of Ancient Egypt's most famous queens, they killed each other or were shot by the police, depending on which version you believe, and headed to an afterlife they no doubt imagined to be far different to that of their ancestors.

The place is visible from my house, which stands just below these mountains, at the point where desert and cultivation meet. For eight years I have come here whenever Cairo's noise and chaos has overwhelmed me.

And while my housemates and I have sighed at "our" temples and tombs being overrun with large groups, and complained at being awakened by tourist-laden hot-air balloons hovering above us at 6 a.m., we knew it was this industry that insulated our local friends from the misery facing many other Upper Egyptians.

The November attack brutally tore away this insulation. Now a sense of violation and depression hangs over the area. The tourist industry - upon which thousands of lives depend - has been devastated. Hotel owners have laid off hundreds of villagers. Taxi drivers spend their days sipping tea and waiting for elusive customers, while cruiseboats lie moored against the banks of the Nile, their owners trying desperately not to default on loans taken out in anticipation of the best season in years.

Even the touts who used to hawk little hand-carved pharaonic figures seem to have given up. When asked how they will survive the winter, most shrug their shoulders and say things will get better, God willing.

Others are not so optimistic. "It will be at least a year until we start seeing tour groups here again," the manager of one large hotel told me after detailing the "worse than expected" Christmas season, in which he shut down all but a few rooms.

And who can blame the tourists? An atmosphere of menace has replaced the tranquillity. The cave in which the terrorists died was once one of several romantic mountain hideaways for local youths and their foreign tourist lovers.

Now white army-issue tents, staffed by police in six-hour shifts, ensure that no one from the hamlets below ventures near. On the nearby roads, cars and buses are forced to slalom around barriers at the many newly-erected checkpoints.

Half-a-dozen heavily-armed conscripts in bullet-proof vests stand guard outside the entrance to each monument, presided over by black-clad officers with high-tech communications equipment.

Although the intention is to prove that the area is completely safe, such a police presence is a constant reminder of the grisly events in November. For the first time I feel nervous here, even though rationally I know that it is far safer than before.

Local people are also ambivalent about the security, but for different reasons.

Police ineptitude has been held responsible for the appalling carnage at the temple and, as they live with the consequences, the villagers remain angry about how it happened. While they are glad that visitors are protected, most say it came too late for both themselves and the victims.

This ambivalence is complicated by the tension that traditionally underlies relations between Upper Egyptians and the state, a remote entity based several hundred kilometres to the north in Cairo. For years the central government has neglected the south in favour of the north. Illiteracy here is twice the national average, particularly among women; families remain large, incomes small; unemployment is endemic.

Political analysts contend that this neglect, coupled with police brutality, is one reason that Islamist militancy has such a tenacious hold in the region.

While the tourist industry has left Luxor relatively prosperous and immune to the unrest, suspicions between the local populace and the state, usually represented by the police, are never far below the surface. They emerge in the stories I hear about the day of the massacre.

One of my neighbours, a farmer named Tayeb, heard shots that fateful morning, but did not know where they were coming from. As word of what was happening got out, he and other villagers, incensed that strangers were killing their "guests", gathered to do what they could to help. Once the killers emerged from the temple in a hijacked bus, he got on his motorbike and chased them.

Eventually, he joined the police and helped them track the killers as they ran up the mountain.

"The police only had pistols, while the terrorists had automatic weapons," he recalled. "One conscript was shaking so much he couldn't fire his gun and dropped it on the ground. I picked it up and handed the clip of bullets to the officer. But you know," he added, lowering his voice, "none of us brought out our own weapons because we were afraid."

When asked why, he said: "Because if anything went wrong, the police could have grabbed any six of us and said we were the terrorists, even though we were trying to help them."

Given the experience of some of his compatriots in the troubled provinces to the north, where human rights groups allege that arbitrary arrest and torture are commonplace, he was right to be cautious.

Since the attack, the state authorities have hardly bent over backwards to diminish this distrust. At the end of November an officer arrived at Tayeb's door and curtly told him to cut down his entire sugar-cane crop because it was too close to the neighbouring temple of Rameses III.

Militants in the provinces north of Luxor often conceal themselves in sugar-cane during ambushes and farmers there are no longer allowed to plant the crop within 100 metres of the road.

However, Tayeb's patch was too small to conceal anybody and was too far from the temple to allow potential gunmen to target tourists. But it was a major source of cash for his 20-member extended family, and he has yet to receive compensation.

The nadir in police-villager relations came last Saturday, when the local city council decided it was time to demolish illegal buildings. The entire necropolis has been under a construction ban since 1981, when it was declared a protected antiquities zone. But with nowhere else to put their burgeoning families, the villagers have continued to extend their homes or build in the desert.

Previous attempts to implement the decree have usually resulted in such fierce opposition that the police have given up, realising that with an Islamist insurgency taking place not far to the north, it was better to keep the peace.

This time, though, the nervous policemen overreacted, repaying the villagers' help in November with tear gas and bullets. Five people died and thousands of pounds worth of damage was done in the ensuing riot.

Eventually the police retreated, leaving the offending buildings intact but their credibility destroyed.

The incident has left the area tense and its inhabitants confused.

Betrayed by the government, which they feel should be helping them, the villagers seem resigned to waiting for the tourists to trickle back. But many have already taken loans from family members and are now surviving on their rapidly diminishing savings. What will happen when they run out is a thought that nobody wants to contemplate.