On a warm spring day in Tehran, against a backdrop of roses, fountains and the snow-capped Alborz mountains, hundreds of thousands of people have gathered for what organisers bill as the world's biggest book fair.

In every direction are colourful literary and academic displays, poetry readings, impromptu book groups, schoolboy choirs singing popular and religious songs, Spider-Man face-painting, living statues, coffee shops and ice cream, and enormous, buzzing crowds of visitors.

There are conscript soldiers, morality police, daring young women with headscarves pulled back almost behind their ears, periodic calls to prayer broadcast from the Mosallah grand mosque (mostly unanswered), and above all, tens of thousands of books of every description, from novels to policy papers, presented on 7,000 stalls and booths by about 3,000 publishers and exhibitors.

With an estimated daily attendance of 500,000 people drawn from all over the country, the 10-day Tehran international book fair is a mixture of carnival, festival and earnest debate – a place for the celebration of Persia's literature, history and science, and for the serious expression of modern Iran's aspirations.

Defying stereotypes of an isolated, threatening, sanctioned country, evidence of change – both superficial and fundamental – is everywhere.

Last year, the regime of the then president, Mahmoud Ahmadinejad, banned some publishers supposedly sympathetic to reformist views. This year, there have been no such prohibitions, although censorship persists. The fair was opened in person by Ahmadinejad's successor as president, Hassan Rouhani, an amiable centrist.

"A book, its publisher and the reader are respected as much as wisdom itself," Rouhani said. "We should try to pave the way for book writing and reading … If we want books to obtain their rightful place, we should provide security and freedom for their writers and publishers." The fair was a sort of public diplomacy, he added.

Coming from a leader of a country that once issued a fatwa against Salman Rushdie's Satanic Verses, Rouhani's words seem to mark a big change of tone and direction.

Hasam, a Tehran marketing student who had come to purchase books on management information systems, said Iran was opening up to the world. "This is the largest exhibition in Iran. Politically it is quite free," he said. "There were some problems before but it is better now under Rouhani. The youth in Iran like Rouhani. They call him 'Too Honey' because he is so sweet. Maybe Iran was cut off under Ahmadinejad. But he and [Javad] Zarif [the foreign minister] are changing the situation.

"Some European governments and the US, they don't like this. They don't want it to change. They are against Iran opening up to the world. They are afraid of something. I don't know what," he added.

Samaneh, a Tehran primary school teacher, said she had come to the fair to find more books by her favourite authors. "Jane Austen and Edgar Allen Poe are the ones I like the most. I have read Sense and Sensibility and Pride and Prejudice. I am looking for Emma," she said.

On the other side of the counter, a representative of Peyman Publishing of Tehran said the fair made good business for his company, with books on poetry, history and cooking in high demand. Takings during the 10 days accounted for one-tenth of the firm's annual income. "The great advantage is that we can introduce books to people who would otherwise never see them," said the man, who asked not to be named.

Some books continue to be banned or subject to censorship. The sought-after diaries of the former reformist president Hashemi Rafsanjani have proven notoriously hard to get, and a book on Zoroastrianism only made it to the shelves after tough scrutiny by the ministry of Islamic guidance and culture, which oversees the fair. Defying such supervision, some publishers reportedly take advantage of the fair to sneak out illegal books.

But the scope of work legitimately available appears to have widened. Elmi Ali, director of the long-established Tehran imprint Paykan Press, gave as an example his published translation into Farsi of Ivo Andric's The Woman from Sarajevo.

Despite the fair's international tag, the presence of foreign, especially western, publishers and books remains limited. Reza Masoumi, in charge of media relations, said the fair was the biggest in the world, judging by attendance, but that due to financial sanctions the Americans were absent. The US company McGraw Hill, a past exhibitor, was not present this year. Most European countries were not represented either, he admitted.

Iran's friends and neighbours, including Russia, China and Afghanistan, were there in force. So, too, were Japan and Turkey. The sole British publishing presence appeared to be Pearson Longman, whose educational books were displayed on a stall run by an Iranian literary agency, Ghazal Javan Publications.

Germany provided an exception. Claudia Dobry, international project manager for the Frankfurt book fair, said the two annual events maintained good links. Two German publishers had agreed to put their books on show this year, and the German stall in Tehran was funded by the federal foreign ministry in Berlin. A public reading involving personal appearances by authors such as David Wagner was planned, with simultaneous translation, she said.

All the same, Dobry said, sales were limited, partly because only two or three German-language books were translated into Farsi each year, a situation replicated across Europe. There were also problems with copyright, due to lax regulation in Iran, and with official censorship.

"It does not seem to matter so much what the book says inside," Dobry said. "But the cover can be a problem, especially if it shows naked female skin. They have a problem with naked female skin. They also have difficulty with Greek statues."