The devastated Iraqi city that stemmed the advance of Iran's revolutionary forces is emerging from the ashes of war after eight years under siege.

Thousands of civilians are returning to the port city of Basra, once only a rifle-shot from the frontlines of the Persian Gulf War.Iran's blitzkrieg into Iraq faltered at frontline-Basra two years ago.

Iraqi troops in bunkers and trenches clung to the city as night-after-night Iranian artillery gunners pounded it from across the Shatt al-Arab waterway. But the Iranians were unable to drive a wedge into the city and the siege failed.

When Baghdad turned the tide of war against Iran earlier this year, pushing the Iranians back across the Shatt al-Arab, Basra emerged, bloodied but unbowed.

The governor of this city of 10 million palm trees, on the banks of the Shatt al-Arab waterway, now says he plans to turn it into the Venice of the East.

"Thousands of workers, including some working for foreign companies, are working day and night to reconstruct damaged buildings and build new ones," governor Anwar Sa'eed Omar al-Hadithi said on Friday.

Hadithy said one house in three was destroyed in the shelling which killed 1,638 civilians and wounded 7,282.

Hadithy said the Iraqi government had allocated 4.5 billion dollars to rebuild Basra, in addition to money in the annual budget and five-year plan.