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Amsterdam is a compact, instantly likeable city. It's appealing to look at and pleasing to walk around, an intriguing mix of the parochial and the international; it also has a welcoming attitude towards visitors and a uniquely youthful orientation, shaped by the liberal counterculture of the last four decades. It's hard not to feel drawn by the buzz of open-air summer events, by the cheery intimacy of the city's clubs and bars, and by the Dutch facility with languages: just about everyone you meet in Amsterdam will be able to speak good-to-fluent English, on top of their own native tongue, and often more than a smattering of French and German too.

The city's layout is determined by a web of canals radiating out from an historical core to loop right round the centre. These planned, seventeenth-century extensions to the medieval town make for a uniquely elegant urban environment, with tall gabled houses reflected in their black-green waters. This is the city at its most beguiling, a world away from the traffic and noise of many other European city centres, and it has made Amsterdam one of the continent's most popular short-haul destinations. These charms are supplemented by a string of first-rate attractions, most notably the Anne Frankhuis, where the young Jewish diarist hid away during the German occupation of World War II, the Rijksmuseum, with its wonderful collection of Dutch paintings, including several of Rembrandt's finest works, and the peerless Vincent van Gogh Museum, with the world's largest collection of the artist's work.

However, it's Amsterdam's population and politics that constitute its most enduring characteristics. Celebrated during the 1960s and 1970s for its radical permissiveness, the city mellowed only marginally during the 1980s, and, despite the gentrification of the last twenty years, it retains a laid-back feel. That said, it is far from being as cosmopolitan a city as, say, London or Paris: despite the huge numbers of immigrants from the former colonies in Surinam and Indonesia, as well as Morocco and Turkey – to name but a few – almost all live and work outside the centre and can seem almost invisible to the casual visitor. Indeed, there is an ethnic and social homogeneity in the city centre that seems to run counter to everything you may have heard of Dutch integration.

The apparent contradiction embodies much of the spirit of Amsterdam. The city is world famous as a place where the possession and sale of cannabis are effectively legal – or at least decriminalized – and yet, for the most part, Amsterdammers themselves can't really be bothered with the stuff. And while Amsterdam is renowned for its tolerance towards all styles of behaviour and dress, a primmer, more correct-thinking big city, with a more mainstream dress sense, would be hard to find. Behind the cosy cafés and dreamy canals lurks the suspicion that Amsterdammers' hearts lie squarely in their wallets, and while newcomers might see the city as a liberal haven, locals can seem just as indifferent to this as well.

In recent years, a string of hardline city mayors have taken this conservatism on board and seem to have embarked on a generally successful – if often unspoken – policy of squashing Amsterdam's image as a counterculture icon and depicting it instead as a centre for business and international high finance. Almost all the inner-city squats – which once well-nigh defined local people-power – are gone or legalized, and coffeeshops have been forced to choose between selling dope or alcohol, and, if only for economic reasons, many have switched to the latter. Such shifts in attitude, combined with alterations to the cityscape, in the form of large-scale urban development on the outskirts and regeneration within, combine to create an unmistakeable feeling that Amsterdam and its people are busy reinventing themselves, writing off their hippyfied history to return to earlier, more stolid days.

Nevertheless, Amsterdam remains a casual and intimate place, and Amsterdammers themselves make much of their city and its attractions being gezellig, a rather overused Dutch word roughly corresponding to a combination of "cosy", "lived-in" and "warmly convivial". Nowhere is this more applicable than in the city's unparalleled selection of drinking places, whether you choose a traditional brown bar or one of a raft of newer, designer cafés, or grand cafés. The city boasts dozens of great restaurants too, with its Indonesian cuisine second-to-none, and is at the forefront of contemporary European film, dance, drama and music. The city has several top-rank jazz venues and the Concertgebouw concert hall is home to one of the world's leading orchestras. The club scene is restrained by the standard of other main cities, although the city's many gay bars and clubs partly justify Amsterdam's claim to be the "Gay Capital of Europe".