The German film industry is enjoying a renaissance as more German films are seen by audiences both at home and around the world. Derek Scally reports from the industry's showcase, the Berlinale

There's an old saying you hear every year at the Berlin Film Festival (Berlinale): "Germans have films, the French have cinema". That tired maxim was replaced this year by "German cinema is back".

Festivalgoers were treated to a strong line-up of 67 German features and documentaries, many of which fell into one of three loose categories. The first took a fresh look at the old Nazi elephant in the corner of the German psyche; the second was from directors who aren't afraid to look at German themes with a German aesthetic while still conveying a universal message; and the third was a stand-out collection of documentaries.

Germany was a giant in the early years of the movie industry. But the proclamation six decades ago by Joseph Goebbels, the Nazi propaganda minister, of a new era of "German cinema" with "German themes" and "German actors" was not just the beginning of the end of the German film industry. It rendered unthinkable any post-war notions of a German national cinema.Instead, postwar diversionary films in West and East Germany gave way to the works of Fassbinder, Herzog and Wenders, and the notion of "German films" instead of a German cinema.

Things took on a new momentum seven years ago with the breathless Run Lola Run. For the first time in memory, a German film was selling around the world.

"All you need is a success story... in any business. You have one success story, then it opens the doors," says Beki Probst, director of the European Film Market at the Berlinale.

Goodbye Lenin! and Nowhere in Africa built on Lola's success, and latest in the run is Head-On, which took the top prize in Berlin as well as the European Film Prize last year. "Things are really changing," says Alfred Holighaus, co-director of the Berlinale. "Not just that there are more German films which are seen by more German audiences, which is good news. But on the other hand, German films start to travel and start to sell all over the world."

Cinema admissions rose by 5.2 per cent to 150 million in 2004. Now every fourth ticket sold is for a German production, bringing €36.7 million back into the domestic film industry. Three homegrown films made into the German Top 10 list last year, while two others (Troy and The Day After Tomorrow) had German directors.

New German film laws grant "reference points" to producers who bring their film to international festivals. The more points a film has, the greater its share of a funding pool set aside by the German Federal Film Board (FFA). The government may also make film funding fully tax-deductible as long as a third of the total production costs are spent within Germany.

There was scarcely a dud among this year's German line-up at the Berlinale. Leading the pack was the extraordinary Gespenster (Ghosts), about a woman searching the streets of Berlin for her daughter, kidnapped years earlier. Also popular was Sophie Scholl - The Final Days, with Julia Jentsch taking the Silver Bear for her affecting portrayal of the doomed Nazi resistance fighter.

"This new generation of German film-makers have found their own way of looking at German history as well as everyday life in ways that are both ingenious and entertaining," says Peter Dinges of the FFA, a view that many insiders pinpoint as the key to the revival in Germany's film fortunes.

In the Berlinale afterglow, the German Historical Museum in Berlin is this month launching a programme. "A German Film Style?" looks at the artistic influences of Nazi film-maker Leni Riefenstahl, and how she in turn influenced the German film aesthetic. It's a taboo-breaking move for Germany: a healthy artistic reconciliation with, but not apologia for, the Nazi regime that destroyed German cinema.

Two German films received Oscar nominations this year: the controversial Hitler film Downfall and the highly-praised documentary The Story of the Weeping Camel. The Germans left Hollywoood empty handed on Sunday night, but not disappointed. Back in Berlin, the one-time giant of the film industry is stirring.