In happier times the noise that came from the Abbasiyeen stadium in Damascus was nothing more threatening than the roar of the fans whenever Syria's national football team scored a goal. But in the third year of the uprising against Bashar al-Assad the sporting arena echoes to the fearful sound of high explosives targeting a rebel stronghold down the road.

Residents have got used to the din, but it has intensified in recent days. "I can't sleep any more," one local man complained as outgoing artillery fire rattled the windows and crystal chandeliers in his front room – terrifyingly close to the front line of a battle whose outcome could determine the fate of this country.

From the square next to the stadium – now occupied by troops of the Syrian army's elite Fourth Division – it is only a few hundreds yards to the neighbouring district of Jobar, though access is blocked by a massive concrete barrier. YouTube clips show snipers on the other side firing at unseen targets – "fighting for freedom", the caption says.

For some the scene recalls divided Beirut in the late 1970s, the darkest days of Lebanon's civil war. Others are reminded of Iraq, ravaged by sanctions, war and sectarianism. "Welcome to Baghdad," quipped a young Syrian, surveying the mushrooming checkpoints, blast walls and special vehicle lanes that make moving around Damascus such a time consuming and nerve-racking affair.

Still, the official mood is upbeat. "Things will slow down," predicted a Sunni industrialist who is close to Assad. Loyalists dismiss the notion of a full-scale battle for the capital as opposition propaganda or media exaggeration. "They can dream about it," said Anas, a middle-class businessman. "They can plant car bombs like al-Qaida but the army is too strong for them."

State media report daily on operations by the "heroic" armed forces against "armed terrorist gangs" like Liwa al-Tawhid in Jobar or the Free Syrian Army in nearby Qaboun – both suburbs of Damascus proper, not the surrounding Damascus region, which is now largely beyond government control. "The steadfastness of the army will defeat the terrorist plots and conspiracies," the slogan says.

In the city though, the reality is stalemate punctuated by sniper and mortar fire. There are no ground operations by an army unused to street fighting and, it is said, worried about casualties and mass defections: thus the constant use of artillery and air strikes – like the one that killed 10 children in Qaboun last weekend.

Irreverent Damascenes note that while Syrian TV correspondents can go no further than the road sign pointing to Jobar, al-Jazeera – vilified as the tool of Assad's arch-enemy Qatar – has a reporter based permanently on the rebel side.

Nowhere in the capital is the war closer than it is at Abbasiyeen. "Everyone in my area who has kids is leaving in the summer as soon as school is finished," said a well-heeled woman. "They'll go anywhere, to Beirut, Canada, anywhere just to get out."

But nowhere is its presence far away. News of death is shockingly routine. Mudhar, an Alawite and government sympathiser, was phoned one afternoon to be told that his mother had just been shot dead by a sniper in Harasta to the north-east of the city.

Almost in passing, at the end of a long conversation, another man produced a photograph of his nephew, a volunteer with the new National Defence Army. Adnan's arm was blow off by a shell and he had bled to death while fighting in the Deraa area the previous day. Old friends catching up chat in hushed tones about how the decapitated corpse of the son of the Damascus police chief was found in the Barada river.

Another acquaintance spoke of a relative who was detained months ago. Earlier this week his family was told by the Mukhabarat secret police to come and collect his body, with no explanation of what happened. No wonder passersby give a wide berth to sinister-looking security installations, notorious for torture and abuse in horrific conditions.

Stress levels are understandably high, with pharmacists reporting a constant demand for tranquillisers and sleeping pills. "Is it just me, or does everyone else also have daily dreams and nightmares about shootings and killings and orphans and all?" one woman tweeted.

March – which marked the second anniversary of the start of Syria's agony – was the bloodiest month of the crisis far; an estimated 6,000 people were killed after intensified fighting around Damascus and Deraa.

The violence and polarisation mean political activists opposed to the regime are now far less in evidence in the capital than they were a year or so ago. Many who opposed the militarisation of the uprising have left the country or are keeping their heads down. Countless others are in detention without trial.

"It is hard and it makes me anxious," admitted Sana, who has been summoned by the Mukhabarat about comments she posted on Facebook. "If you are taken in by one branch of the security services each one will want to question you. But you get used to these things."

Small, peaceful protests still take place – filmed and quickly uploaded to YouTube – but they attract little attention locally. In Medhat Pasha Souq, the picturesque covered market in the heart of the old city, a few dozen people mounted a flash demonstration the other day, chanting "God Protect the Free Army" before dispersing.

In this atmosphere suspicion is rife, and there are rumours of rebel "sleeper cells" stockpiling weapons and waiting to attack inside Damascus when the order is given. "Yes, there are such cells," said Rafiq, a Syrian journalist with his own Kalashnikov-toting bodyguard – a sure sign of privileged links to the secret police. "But a lot of them have been caught. People are helping the Mukhabarat more than they did before." The barrier of fear is still largely intact.

Security on the ground is in the hands of the popular committees, whose members carry pistols and machine guns and are authorised to patrol their own localities and communities – Christians in the Bab Touma area of the old city and members of the tiny Shia minority in an adjacent quarter. This is a sign, some fear, of a society starting to fragment under intolerable pressure. "It's a mistake to arm people on a sectarian or religious basis," warned a former Baath party stalwart. "It is a catastrophe in the long term."

Short-term prospects looks bleak too. The Sayyida Zeinab Mosque, a golden-domed Shia shrine to the south of the city, is protected by men of the Abu Fadl al-Abbas Brigade, an umbrella unit that comprises Iraqi Shia militia, Hezbollah fighters from Lebanon and a contingent of Iranian Revolutionary Guards – a coalition of loyal foreign friends helping the Assad regime to face down its domestic and foreign enemies.

No one can predict what will happen next, but some believe the government can live with the status quo as long as it continues to control Damascus. It will probably be helped by a palpable sense of exhaustion, misery and fear – in Abbasiyeen and beyond. "Until a few months people were still arguing, for and against the government and the opposition," said Zena, a student. "Now they don't care any more about politics. They just want the killing to stop and to be able to live their lives again."

• Some names in this report have been changed to protect people's identities

• This article was amended on Saturday 20 April 2013 to remove a reference to "rebel popular committees".