Joy as Derry is named 2013 City of Culture

(ALAMY )

The decision to award Derry the mantle of the UK's inaugural city of culture was last night hailed amid a wave of euphoria as "a precious gift for the peacemakers".

Cheers and celebrations broke out in the city centre when it was announced that it is to be 2013 UK city of culture, its representatives hoping it can now begin to leave behind its image of a city of conflict.

The victory for Northern Ireland's second city brought disappointment for Birmingham, Sheffield and Norwich, which had also reached the short-list for the keenly contested title.

Derry still has its problems:riots in the city this week were described by a police as among the worst in a decade, and its republican and loyalist populations largely live apart.

But, strikingly, last night's victory in the cultural contest was acclaimed by both republican and nationalist representatives. Martin McGuinness of Sinn Fein, the one-time local IRA commander who is now Northern Ireland's Deputy First Minister, declared: "This is a very precious prize for the peacemakers. Derry was a very troubled place but it has moved to a new space where we are prepared to look at the mistakes of the past."

Democratic Unionist MP Gregory Campbell said he felt very proud of the city's success, adding: "Let's realise the potential. We need to try to ensure that the divisions of the past are the divisions of the past and that this has a unifying potential for the future. Too often in the past this city has had a divided culture – we need to bring people together."

The city has seen much violence, notably on Bloody Sunday in 1972. But its bid attracted support from politicians of various hues as well as from artistic figures such as Nobel prize winning poet Seamus Heaney. According to Heaney: "Even in darker times, there was always something tonic about the spirit of people here, but prospects of a better future have strengthened resolve, and signs of progress are evident in all spheres of life, not least in the cultural area."

He added: "We now have a timely and unique opportunity to demonstrate to ourselves and to the world that a new mould and a new life have been shaped."

Derry's second Nobel prize winner is John Hume, the nationalist leader born in its backstreets who was awarded the honour for his role as one of the principal architects of the peace process. The hope is that Derry's place in the spotlight will attract international attention and investment, both artistically and economically. It is regarded as a location of unique character whose residents have a sardonic and self-deprecating sense of humour and a tradition of self-help.

Known for decades as a place with an aura of pessimism and a tradition of unemployment and emigration, in more recent times it has developed a more outgoing mentality and has improved its economy. Derry has in recent years attracted large numbers of tourists who come to see its 17th-century walls, which are the centrepiece of an ancient siege, and the site of more recent events such as the Bloody Sunday incident.

The recent official report into those shootings, which was followed by a declaration from David Cameron that he was "deeply sorry" for what happened, was seen as an important act of conciliation. But the city still has obvious problems. Just this week youths repeatedly clashed with police, throwing petrol bombs and other missiles. A masked gunman fired shots at police on Tuesday during incidents which were described by a senior police officer as among the worst in a decade.

Una McGillion of Derry City Council said the feeling before last night's announcement was one of excitement and nervousness. She said that being awarded the title was "very significant in terms of economic potential and the growth of the city."

She added: "We are very confident that with this opportunity we can target areas and places that have had no access to jobs before. It will boost the confidence in the city and the pride of local people."