MORELIA, Mexico — As helicopters circled overhead, trucks carrying Mexican army troops lurched through the colonial streets of this provincial capital to a central plaza, where a grenade had been discovered near the cathedral.

Law-enforcement agents cordoned off the plaza and removed the grenade. But the latest attempt at intimidation in Michoacan , the state where Mexican President Felipe Calderon first dispatched the military to confront the Mexican drug cartels, appears to have succeeded.

Fear of the drug gangs pervades this city about 200 miles west of Mexico City .

"Don't go to Aguililla or to Tepalcatepec or to Coalcoman!'' is the warning Victor Serrato , president of the State Commission on Human Rights in Morelia gives visitors. There is a risk of abduction, mistreatment or worse, he said.

Paracuaro , which human rights experts considered a "safe" town, turned out not to be. Not long after this reporter and a photographer sat down at a restaurant interview a local resident about drug violence, two police officers arrived and sat down — only to rush off when they spotted the visitors. We took the hint and quickly left town.

Gruesome gangland-style murders and targeted assassinations of law-enforcement officers have claimed headlines in what Mexicans now refer to as war.

The chilling reality of Mexico is the mounting evidence that organized crime has become the de facto power in parts of the country, and local authorities can no longer protect citizens and impart justice.

" Michoacan is one of the states where you feel most the breakdown of the social fabric because of this criminal activity," Serrato said.

"These cartels, which previously were dedicated to the narcotics business, have now turned to control a whole other series of activities," he said. "They are demanding payoffs not only from owners of illicit businesses, but what is more serious, they are demanding them from people who sell clothing in markets or the owners of small restaurants."

The winnings from the trafficking of illegal cocaine, marijuana and other drugs are on view in Uruapan : There are luxury car dealerships, stores selling expensive furniture and homes that locals say belong to drug traffickers, distinguished by having no windows facing the street and thick walls on all sides and strings of electrified wires atop the walls.

Violence between competing drug gangs reached a peak in 2006, when drug commandos knows as the Zetas tossed five severed human heads on a night club floor in Uruapan , some 290 miles west of Mexico City . But there is no sign that the bloodshed has ended. In the last week in August, the state was the site of four gangland killings and the abduction of Uruapan's town council secretary, Maribel Martinez , who was snatched after the attended an evening mass. Her bodyguards were wounded.

"This happens all the time: killings, kidnappings, robberies, rapes," said Morelia college student Francisco Paredes , putting on a brave face. "I was afraid, not any more."

Life in some parts of Mexico is part Colombian-style violence, part Al Capone's Chicago in the 1920s, and part civil war, although the gangs are not fighting for any cause beyond self-enrichment.

Despite the 2,673 deaths in the violence through mid-August — more than in all of 2007, life goes on. Some 14,000 people recently ran a Mexico City marathon; "12 Angry Men" played to packed audiences in Mexico City in August and Wal-Mart Mexico opened 14 stores in June.

But Mexicans in Michoacan and other parts of the country, described in dozens of interviews the growing sense of despair that organized crime has moved beyond just drug trafficking to kidnapping and extortion of ordinary people, overwhelming law enforcement with their spoils of crime, estimated at $25 billion to $40 billion annually.

Like Michoacan , residents in Tamaulipas , which borders the U.S., say that drug cartels control widespread intelligence-gathering networks, for example paying waiters to keep tabs on whether diners are talking about drug gangs or spotters in small towns to report on visiting outsiders. The majority of kidnappings go unreported.

A number of wealthy Mexicans have started to make plans to move to the U.S. because of the rising incidence of kidnapping and extortion.

A poll taken in June showed 53 percent of Mexicans thought drug gangs were winning the war and only 24 percent believed the government had the upper hand.

What's worse, security analysts agree that while the military can reduce the open violence, soldiers can do little to weed out the spread of organized crime into civilian institutions. That effort requires coordination with law enforcement and justice institutions.

Increasingly political leaders and officials are speaking openly of the threat to the country's democratic government.

On Aug. 23 , Beatriz Paredes , leader of the Institutional Revolutionary Party , lashed out at Calderon's government over the rising violence.

"There are risks of this becoming ungovernable above all because the rule of law is being weakened by rising crime and public insecurity," she said.

Paredes echoed Guillermo Valdes , the head of the government's intelligence organization CISEN, who framed the issue as a threat to democracy. Drug traffickers are attempting to take control of the government, he told foreign reporters recently.

It's too early to call Mexico a failed state. The federal government retains enormous power, and Calderon pledged in a radio message on Aug. 25 that the insecurity problem was "a cancer that we are going to eradicate."

But there are some states that are failing to protect their citizens from the slaughter.

On the same day Paredes was criticizing the Calderon government, Jose Reyes Baeza , the governor of Chihuahua, faced down an angry crowd in the town of Creel demanding an explanation for the absence of police protection on Aug. 16 , when drug commandos stormed a dance hall, gunning down and killing 13 people, including an infant.

Despite the 40,000 troops Calderon has deployed — including 6,500 in Michoacan — safety and security still elude residents in zones where drug lords and their heavily armed commandos fight among themselves, battle the military and wage a low-intensity war of intimidation on the population.

"People are at the breaking point," said Serrato of the Michoacan human-rights commission.

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Lost in all the hubbub is that Mexico is a country with a bumpy past, as well as diverse cultures, cities and geographical areas. On the flip side of all that beauty and mysticism, is Mexico's emerging reputation as a more dangerous place for tourists.

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