Last week in Britain, some commentators were endorsing calls from the newly ennobled former New York mayor, Rudolph Giuliani, to jail cannabis smokers , and vilifying Brian Paddick, police commander of Lambeth, for telling an internet forum that the drug laws need reform. To arrive in Holland's fourth largest city is to cross a cultural chasm. First there is the obvious: like most Dutch towns, Utrecht, population 300,000, has its coffee shops, 40 of them, each selling dozens of brands of cannabis to smoke at the tables or take away. In Holland, ideas considered dangerously radical in Britain attract little controversy. 'There is no war on drugs in the Netherlands,' says Machel Vewer, a senior police detective who has spent the past decade working with addicts. 'What's the point of making war on part of your own country? Drugs are here and they're always going to be. This is a social problem, not a criminal one, and the whole of society has to tackle it - not leave it to the police on their own.

'This means accepting that addicts are people too: that they have their backgrounds, their stories, and you have to respect them. They can still lead useful lives, and they're not a lost group. If you look at England, France, Spain, they all have drug problems. But Holland started thinking about how to deal with this much earlier. We're not deluded we can solve the problem entirely, but we can contain it, make it controllable. You are 20 years behind.'

This is no utopia. Around the stairwells and walkways of Hoog Catherijne, Utrecht's addicts, many of them homeless, are highly visible: hunched, gaunt, unshaven. The mall and its customers, brimming with prosperity, present an inevitable target for thefts to fund pur chases from dealers, which still remain illegal. But measured against the near-catastrophe of drugs policy in Britain, the evidence suggests the Dutch are right.

Last summer I spent weeks researching two Observer articles about hard drugs in Britain. As I rapidly discovered, the past decade has seen an explosion in Class A drug use, mainly crack and heroin. Seizures by Customs and police have soared, but the price has fallen steadily, while the market has expanded far beyond its former inner-city strongholds. In Cotswold villages of golden stone and tea shoppes, heroin can be summoned more easily than a takeaway meal. As the drug research charity Drugscope confirmed last week, teenagers are progressing from cannabis to crack and heroin much more quickly.

With increasing drug dependency, drug-related crime has surged. Good intentions and good ideas to deal with this crisis have not been lacking. Since the mid-1990s, Governments have recognised the need to cut demand through education, and invested heavily in drug rehabilitation. Yet, with the sole exception of the present Home Secretary David Blunkett's move to reclassify cannabis as a Category C drug, the basic legal framework has remained untouched. Commander Paddick can ask his officers not to arrest for smoking a spliff, but sanctioning coffee shops is not within his remit. More radical reform remains a political taboo.

In Holland, drug policy begins with pragmatism. Its central objective, says Harold Wychgel, of Drugscope's Dutch equivalent, the Utrecht Trimbos Institute, 'is to reduce the risks posed by the use of drugs to the users themselves, people in their immediate vicinity, and society at large'. The Dutch accept that achieving this may require apparent contradictions and compromises.

Selling cannabis through coffee shops remains theoretically illegal. 'They could close me down tomorrow,' says the manager of Utrecht's largest, a fume-filled den in a fine Renaissance building by the banks of the Rhine canal. Yet his trade is merely regulated, with the police checking that his bags of resin from the Middle East and potent hydroponic 'Nederweed' weigh no more than 5g, and that none of his customers is under 18. The policy is rigorously enforced, says Vewer. One shop was caught supplying to under-age smokers, and its licence was withdrawn.

In the coffee shops, the police are regulating businesses dependent on organised crime. At their back doors, owners buy their supplies from criminal importers and traffickers, who just as in Britain are investigated, prosecuted and sent to prison. Is this a problem? Vewer shrugs genially. Apparently not.

The Rhine canal shop manager smiles. 'I've been doing this for 25 years.' He pauses. 'Buying is just... well, allowed.'

In border areas, and in honeypots such as Amsterdam, coffee shops have boosted Holland's income from tourists. However, the reason they began to appear in 1976 was as a means of separating the markets for soft and hard drugs, and thus for closing the dealers' 'gateway' from cannabis to heroin and cocaine.

The policy may rely on a legal fudge, but the evidence that it works is overwhelming. 'Just look at the figures,' says Wychgel. 'Heroin is just not an issue here in the Netherlands. The number of addicts has been stable, at around 25,000, for20 years. And the addicts are getting older; few youngsters are joining them.'

At an average £20 a gram, Dutch heroin is about half the price it is in England, where the fact that the drug is cheaper than it was in 1990 has helped dealers persuade their customers to transfer from cannabis. Per head of population, Holland has perhaps a quarter of Britain's addicts. Meanwhile, Holland also has significantly fewer cannabis smokers, especially among teenagers. From the age of 10, children are given drugs education. It tries, says Wychgel, to present the facts about drugs in a way which removes any sense of glamour, but leaves the decision up to the individual. 'We say, "It's your responsibility, this is what drugs will do." We don't tell kids simply "no", we say "know".'

Trimbos surveys 10,000 Dutch schoolchildren every four years. The last study, in 1999, showed a small decline in cannabis use - 20 per cent of those aged 15-16 had tried it, and 5 per cent smoked it regularly. Less than one in 1,000 had tried heroin. The same year the European Drug Monitoring Centre found 40 per cent of British children the same age had tried cannabis, and one in 50 had used heroin.

A similar pragmatism, with reducing harm as the governing principle, is visible in the way Utrecht deals with hard drugs. The smoking and shooting rooms at Stationsplein form part of an impressive network of facilities. Some deal with the homeless addict's survival needs. At the Inlope centre, beneath another part of the shopping mall, registered users can get a shower, clean clothes, cheap hot food, a game of pool and a respite from the rigours of the street.

The new Stek building, a smart bungalow next to a canal, combines drug-taking rooms with a cafe and common room. From an addict's point of view, the benefits are obvious. 'Before they built this place,' says Martin, 34, a crack and heroin user for 16 years, 'they hunted us. You had to use on the street and look behind you. Now you can really enjoy your stuff, and you're not so stressed. Life is much less aggressive.'

At the same time, Vewer argues, wider society is also better off. The addicts' centres provide immediate access to rehabilitation programmes and employment training for those who want them, and some work at the centres themselves, cleaning, cooking or washing clothes and bedding. Ruud Laukon, a field coordinator from Utrecht's main drug social work project, the Centrum Mallieban, works seamlessly with Vewer: 'We and the police have the same viewpoint. If you treat addicts as criminals, they'll treat you as criminals do. Sending them to prison doesn't solve anything.'

The addicts used to spend their days in a dark, fetid pedestrian tunnel beneath the Hoog Catherijne mall, which has now been closed. Intimidating and dangerous for passers-by, it also saw frequent violence between addicts. 'It's much easier now to have good relationships with them,' Vewer says. 'It creates a set of rules, and the addicts know they have to abide by them. It makes the scene much easier to control.'

Patrolling the mall with two uniformed policemen, Robert Wisman and Sander van der Kamp, the personal nature of that control is strikingly apparent. Time and again, users greet the officers and stop to talk. As we pass through the maze of shops and restaurants, they point out the known dealers, some of whom they have sent to prison. In Utrecht, as in Britain, addicts steal to fund their habits. As we walk, Wisman explains how the thin blue line tries to hold back crime. 'We have a lot of bicycle theft. The addicts steal bikes and sell them to students. And theft from cars: they break the windows, take the stereo; and naturally some shoplifting, and a few pickpockets.' How about robbery, muggings? Wisman stops and the two officers confer. 'I think there may have been one last year. I'm not sure. It's very rare.' Car-jackings? They laugh. 'Not here.'

Official figures bear them out. The Hoog Catherijne may be the centre of Utrecht's drug scene, but crime is no more common there than anywhere else. In 2000, the International Crime Victims Survey confirmed the impression from the streets: the crimes typically committed by drug addicts - burglary, robbery, shoplifting and theft from cars - are all significantly more prevalent in Britain than in Holland.

Before boarding my train for the airport, I ask Wisman if he likes his job. 'Very much,' he says. 'Sometimes I get a little depressed that there's never going to be a real solution to the drug scene. But then again, I certainly don't think things are getting worse.'

His reply speaks volumes about the difference between the British and Dutch approaches to drugs and crime. In Britain, successive politicians and police chiefs have vowed to defeat drugs, and in presenting their rhetorichave pumped up the enemy in the eyes of the public, exaggerating its strength and demonising addicts, using the media to create waves of what criminologists call 'crime panics'. The result has been an almost complete restriction on political room to manoeuvre.

In Holland, a calmer conception of the relationship between the state and citizen, and awareness of the state's limitations, have created a strategy of containment and limiting harm, and where necessary, an expedient, pragmatic fudge. There's little doubt which has been more effective.