Back to 'La Dolce Vita'.(Italian cinema)

In Federico Fellini's 1976 film "Casanova," a giant Medusa rises out of a Venice lagoon and looms menacingly over Donald Sutherland's character. Back then the film was considered a work of genius for creating such dazzling effects. Directors everywhere aspired to Fellini's imaginative camerawork. Rome was known as the Hollywood of Europe; Italian films like "La Dolce Vita," "8i" and "La Strada"--as well as American movies filmed in Rome, like "Cleopatra" and "Ben Hur"- -won admirers and breathless reviews all over the world.

Some of that heat is returning to Rome, but for different reasons. Instead of borrowing from Fellini's surreal poetic style, major Italian films are taking a page from Hollywood and investing in better technology and glitzier special effects. The country's latest blockbuster, Roberto Benigni's "Pinocchio," is the most expensive film ever made in Italy, costing more than [currency]40 million, mostly for special effects like the lengthening of the puppet's nose. It's also become one of the country's biggest hits. Since it opened in Italy on Oct. 11, "Pinocchio" has shattered box-office records, grossing [currency]20 million in the first two weeks. Toy peddlers are doing a brisk trade in Pinocchio dolls, books and rubber noses. When it opens in the United States on Christmas Day (and Britain two days later), "Pinocchio" will be poised to earn Benigni--whose 1999 Holocaust movie, "Life Is Beautiful," won three Oscars--renewed international acclaim.

It will also help put Rome back on moviemakers' maps. Thanks to the privatization of the country's main cinematic studios, Italy is beginning to enjoy something of a renaissance--both as a producer of mass-appeal movies and as a hub for foreign filmmakers. Under Hollywood's tutelage, Italian directors have become much savvier in everything from pampering stars and managing extras to using new digital technology and marketing the final product. At the same time, they are acutely conscious of their heritage. "We're doing our best to integrate the old Italian artisan way of filmmaking with new technology," says David Bush, director of Cinecitta Digital, the high- tech arm of the studios that digitized "Pinocchio." "Italy is synonymous with skilled artisans and the film industry is no different. It is a real renaissance: we're all working together for a common goal."

The country's state-run film industry traces back to 1937, when Benito Mussolini built Cinecitta Studios as a mouthpiece for Fascist propaganda. After World War II, Cinecitta turned out films like "La Strada" and "Roma, Citta Aperta," which won Oscars and audiences worldwide. American moviemakers began flocking to Rome to shoot titles like "Roman Holiday" and "Three Coins in the Fountain." The country also produced world-class stars like Sophia Loren and Gina Lollobrigida. Italian craftsmen led the international film industry in set designs and elaborate costumes. When interest in these glamorous films declined in the 1960s and '70s, Italian filmmakers quickly switched to horror movies and then to American-style Westerns, creating the genre known as the spaghetti Western.

In the late 1970s, Cinecitta--and the industry as a whole--fell into decline. A faltering economy and new tax laws made it prohibitive for filmmakers to shoot on location in Rome. Canada began luring them with cheap labor. Sinking fast, Cinecitta began making soap operas and television shows, which were much cheaper to produce.

Looking to unload money-losing assets, the government ditched Cinecitta four years ago--which was just what the industry needed. In that time, private film companies--including Cattleya, R&C Produzioni and Fandango--have sprung up. Benigni began using his company, Melampo Cinematografica, to make internationally competitive movies like "Life Is Beautiful." He and other actor-directors, like Nanni Moretti ("Dear Diary," "The Son's Room"), have since become household names in Italy and ...