It was 59 years ago that Ahmed Ali was grabbed from his house by the Egyptian security services and bundled into an unmarked car, but he remembers the day with perfect clarity. "A neighbour contacted the authorities and told them that I had the leprosy disease, and in those days that's all it took," he said. "I was confused and I was terrified. I had no idea where they were taking me."

Ali's destination was Abu Zaabal, Egypt's only surviving leprosy colony. Back in the 1950s this was an isolated community set deep in the Egyptian desert and guarded day and night by camel-mounted policemen.

Now, following significant medical advances and a sea-change in social attitudes towards leprosy, Abu Zaabal's doors have finally been thrown open again. But, despite their new freedom, its residents are refusing to leave. "This place is paradise," said Ali. "Why would I want to go?"

The future of the colony is now at the heart of a debate about how sufferers of one of the most stigmatising diseases can be reintegrated into society. "Colonies were built for an era where the only known treatment for leprosy was complete quarantine," said Dr Salah Abd El-Naby, head of the leprosy programme at Egypt's ministry of health. "That's no longer the case."

Despite specialist outpatient clinics having opened up in every governorate in the country, negating the need for the isolation of leprosy patients, official efforts to bring Abu Zaabal's days as a separate community to an end have been met with stiff resistance from the patients themselves.

The story of Abu Zaabal begins in 1933, when a leprosy colony was established in what was then a remote wasteland 20 miles outside of Cairo. Originally intended to be a self-sustaining community incorporating 125 acres of farmland, patients brought to Abu Zaabal instead found themselves locked in an open-air prison with little contact with the outside world. Shunned by fearful locals and with few resources to fall back on, the colony soon slipped into disrepair.

"You can't imagine what it was like back then," recalled Gian Vittoria, an Italian nun who arrived at Abu Zaabal in 1985. "The government hired nuns from abroad to treat patients here because no Egyptian nurses would come near the place. When we arrived we found it completely trashed."

Over the past decade, though, a series of dramatic improvements has transformed the largest leprosy colony in the Middle East into a thriving village of 6,000 people.

Three-quarters of them are former leprosy patients who rely on the colony hospital for ongoing medication; many have married and had children, while some outsiders have also been attracted to job opportunities inside the compound. "Everything's different now," explained Dr Ahmed Rashad, director of Abu Zaabal's hospital. He grew up in a nearby town and remembers his school friends spreading dark rumours about the colony, which was situated far from roads and across a river. "Leprosy had a fearsome reputation back then and we were all scared of the patients living behind those walls. Now a lot of money has come in from foreign donors and we have a bakery, a kitchen, a shoe workshop and even a broom factory; even those with quite severe deformities are offered employment tending to the gardens and keeping the place clean."

Formerly far removed from other settlements, Abu Zaabal has now been enveloped by Cairo's rapidly-expanding urban sprawl; where empty desert once stood, the capital's fringes have crept right up to the colony's doors. The patients' new proximity to wider society has reflected a shift in global attitudes towards leprosy, also known as Hansen's disease – one of the oldest medical conditions on record.

In the middle ages sufferers of leprosy in some parts of the world were made to wear bells and use separate currency due to the assumed contagiousness of the disease, and as recently as 1985 it was still considered a significant health issue in 122 countries.

Modern research, however, has shown that 95% of people are naturally immune to leprosy and that the disease is not hereditary; in the past 20 years multi-drug therapy has cured 15 million patients, and the days when forced quarantine was considered the only possible treatment have long been left behind.

According to El-Naby, that is why the residents of Abu Zaabal are now free to come and go as they please. In recent years, less than 200 patients have chosen to move outside of the colony's walls.

"I spent my youth here, I built a house here, I married my wife here – this is the place I've constructed my life," insisted Radi Gamal, a 40-year-old who was brought to Abu Zaabal from the northern Egyptian town of Beni Suef while in his teens. His friend, Yasin Ali, who earns 150 Egyptian pounds (£16)a month doing plumbing jobs in the colony, agrees. "This used to be a prison, and yes we're now allowed to leave," he observed while playing dominoes on one of the colony's neatly trimmed lawns.

"But outside these walls when I see people who are fine looking at my deformed hands, I feel ashamed. Here we're all the same, there's a sense of belonging."

As in other parts of the world where individuals living with leprosy are concentrated, self-stigmatisation of patients and misconceptions held by non-sufferers about how the disease is transmitted continue to act as barriers to full integration.

"People in the surrounding areas are still afraid, there's no point pretending otherwise," said Vittoria. "But today you see many Egyptians arriving with food, clothes and other donations, and the patients themselves have helped build a remarkably successful home. The story of Abu Zaabal is a happy one."

• This article was amended on 16 October 2010. The headline used the term leper, which the Guardian style guide states is inappropriate and stigmatising. This has been corrected.