The deputy police chief, Ivan Kukrika, told the Herald there was not enough evidence to charge Ivica Perkovic, who had been in custody for the past two days. As Mr Perkovic was being released, Ms Lapthorne's brother, Darren, was ushered back into the police station to review CCTV footage from Club Fuego where his sister was last seen. And police, who defended their arrest record, will also search a mountain area behind the city later today.

The golden stone walls of the spectacular medieval sea town of Dubrovnik have defended its people from foreign empires and marauders for more than 800 years. The walls have withstood earthquakes and remained defiant even in modern times, providing shelter from the ravages of modern warfare.

During the past two weeks, however, the people of this tiny city - veterans of too many wars but few big-city crimes - have been shocked into wondering if their beloved city may be harbouring an enemy within.

"We are good at war," said Vinko Cosmai, "but we do not have the crime. Every night on Croatian TV we see CSI but we cannot pretend to be detectives. In three generations of my family here, we do not see this [type of] crime. People remember the last homicide in 2001, it is so rare."

Seated on a bar stool in the outdoor atrium of his Latino bar, Club Fuego, Vinko Cosmai, a square-jawed man with a perfectly sculpted crewcut, gestured inside to a small group of travellers clustered around a low table singing spiritedly with a Rocky Horror Picture Show classic.

"You from Australia have taught us a good lesson. You lose one Australian and you care, you send people to find her. You press the police to do really something. It is a good example for us, Australians caring. When we suffered the war, nobody tried to see what happened, to look for people. We could learn."

Mr Cosmai's club, on the boundary of the walled town and opposite the opulent 110-year-old palace which became Dubrovnik's first hotel, has become the focus of intense and unwanted attention as the city's police attempt to unravel the mysterious disappearance two weeks ago of the Melbourne 21-year-old Britt Lapthorne.

New CCTV cameras are mounted on a pole about 30 metres from the club while an enormous electronic screen in the shape of a cube shows a gruelling continuous loop of footage as a memorial to the homeland wars and the terrible six-month siege of 1991. The young travellers who walk past it every day in search of drinks and music appear oblivious to its meaning.

In fact, both the club and the town itself bear little resemblance to the rather more down-at-heel haunts usually favoured by Australia's army of young backpackers. Dubrovnik is expensive, it is quiet and it is its clifftop beauty - not its nightlife - that drives its flourishing tourist trade.

The Herald visited the old town's clubs and pubs on Wednesday night, the same mid-week night that Ms Lapthorne disappeared two weeks ago. At Club Fuego, the bar was relatively quiet with groups drinking and lounging on armchairs inside the atrium and others singing along inside. Downstairs, in an enormous room, another bar played dance music but only a handful had taken to the floor.

"This is the only bar that gives a free drink with the cover price, young people like it very much and it is the only discoteque in Dubrovnik. But we are careful, we do not play techno music, we play Latino, commercial music. Latino is tragedy music to drug users. We make sure it is not attractive to such people," Mr Cosmai said.

"If something happened, someone hit someone or something . . . my staff would remember. This is not the kind of place where these things happen and nobody notice."

For the Lapthorne family, the entire, terrible saga represents a puzzle as difficult to navigate as Dubrovnik's shiny, white maze-like streets.

In Club Fuego, Britt was seen with a group of people, which were originally described as strangers or at best, new acquaintances, but which have since been shown to have included three Australians and at least two who were Monash University students with whom Britt had struck a chord.

"We were wondering why," her father, Dale Lapthorne, said. "That seemed strange to us. Britt wouldn't normally hang out with strangers. But when we heard there were a couple of Monash guys among them we thought 'well, that probably explains it'. Britt's all about friends but not strangers."

In fact, according to Dubrovnik police, Britt had been with seven fellow travellers, they were people she had arrived with and gone out with on two, consecutive nights. There were the three Australians, two Portuguese, an American and one Briton, all wanted now by Dubrovnik police as witnesses to her last hours. The son of the owners of the hostel where the group were staying, Ivica Perkovic, 21, is the only young person who had interaction with the group. He had spent 36 hours in custody being questioned at the police station - and later, at his parents hostel - while the searches were carried out on Thursday.

According to the Deputy Police Chief, Ivan Kukrika, the fact that Britt arrived in Dubrovnik on September 16 in the company of her friends and went out with them on both nights that they were in the town made it "curious" that they left her behind.

Mr Kukrika, clearly under pressure from the unexpected contingent of Australian and local media, is a character from central casting. A chain smoker, flecked grey hair at the temples, rumpled suit, it is clear that with all the best intentions, he is out of his depth. He asked for Interpol help to locate the missing backpackers.

Seemingly unaware that at least two had already provided public accounts of their last hours with Britt in Australia via email, Facebook or phone.

And yet on Thursday, a tip-off to a favoured local reporter led media to a showy police operation, complete with blue and white crime-scene tape that did not even stop local traffic.

At the heart of the mystery of Britt's disappearance has been her mobile phone. Like nearly every step of the "investigation", messages and call logs were not checked for more than a week after her disappearance. Found in her room in the hostel, one apparently showed a call at 2.57am to Ivica Perkovic's mobile phone. The Perkovic family insist that the number is the hostel's general number. It is certainly listed on the hostel's internet site. Ivica turned the ringer off at night and did not hear the call.

But the Lapthorne family remain equally perplexed at the notion of a young woman leaving her mobile phone at home; anyone with a teenager knows this is almost unheard of.

Her passport and valuables left behind? Likely. But her phone and camera, fodder for Facebook entries and travelogues, seemed anathema: "Britt always carried her phone," said her father .

"Elke [her mother] remarked the other day that she would even take it to the toilet with her. She just never left it behind. And even if she had, would she have simply left it out on her bed? We don't think so."

Equally frustrating has been the local police's delayed questions in local clubs.

Deborah, an English woman who runs the popular Irish-themed pub Club Gaffe, told the Herald that police had arrived with photographs of Britt, but not for a week after she had disappeared. Nobody at the venue remembered seeing her there.

The Gaffe Club and nearby Karaka are the two pub-style venues inside the little streets of the old town and along with a small bar called Fresh are the favoured haunts of the younger, more party loving crowd.

"Deborah", who will marry the pub's proprietor in Noosa next year but did not wish to be identified, said: "Everyone knows everybody. The bar staff remember faces, she is a pretty girl. They would remember if they had seen her. It is strange that her friends left I think and didn't stay to look for her. I would stay, wouldn't you?"

"Everyone here, when they first heard, they dismissed it. They said 'no, these things just don't happen here'. Everybody thought she would be back, she is just a kid. Now things have changed and everyone is sure she is dead."

Britt's father says that when she left Club Fuego, a bouncer who was working at the club saw Britt leaving the club with a group of five other young women and two men.