For more than half a century, the rise of modern Germany as an exemplary liberal democracy, as an economic power, as an exporter of decent European values and superb motor cars, has been an object lesson in how a violent pariah state can cleanse itself.

The consensus among historians and the political class in the west has been that the Marxist experiment in the east was but a blip. Led by an Anglo-American coalition that encouraged freedom, open markets and introspection about its recent past, Germany's rehabilitation was a seamless story of redemption earned through decades of good works. The subtext was that the success owed as much to the wise policies of the Americans, the British and even the French, as it did to the Germans.

And so it was, up to a point. Frederick Taylor's compelling book debunks many myths about the immediate postwar years. Through vivid storytelling he shows that the story was far more complicated than has invariably been told in the English-speaking world.

Yes, the west and its values triumphed, but the road was rocky and there was a big price to pay  in East Germany, by millions behind the Berlin Wall who endured life under one of the nastiest police states in Europe. In the bigger, richer West Germany, as Taylor tellingly explains, it was paid by an entire generation that was largely taught to forget about the past.

Taylor has great narrative gifts, as he showed in his books on the bombing of Dresden and the history of the Berlin Wall. Here his account of the last days of the war is brilliantly told. He begins on 11 September 1944, with American GIs crossing into Germany. It is a literary conceit that at first glance seems contrived  he could have begun at any time after D-day  but it works surprisingly well.

He writes sensitively on the attitude of the vanquished to the victors, contrasting the fear of Soviet atrocities  perhaps half a million German women were raped by Russian troops  to the sullen bitterness people felt against the western allies. "Germans loathed the hypocrisy and the arrogance of the allied assumption of superiority," he says.

It is hard for most people under 40 to remember that Germany  both Germanies  was occupied by "foreign" troops for decades after the war. On both sides of the iron curtain Germans' independence was circumscribed. The Soviets knew what they wanted in their eastern zone: they created a state in Stalin's image, reliant on the Stasi to retain power.

The western powers were less sure. A powerful lobby in the US wanted to return Germany to a pastoral middle ages, with no industry with which it could ever again make weapons to threaten its neighbours. Thankfully, they lost out to practical leaders in America and Britain. The Marshall Plan "exorcised" Hitler, gave birth to the West German economic miracle and made the German match with France that has been the centre of the EU.

They were even less certain about how to punish the Nazis and find the "good Germans" to govern the country. Taylor explains that the process, after the high-profile Nuremberg trials, was characterised by realpolitik. In 1945 there were 8 million Nazi party members, more than 10% of the population. Among teachers, lawyers and civil servants the percentage was far higher. Basic services could not be run without them.

The British were the most pragmatic and quickly gave up looking for any Nazis apart from major war criminals. Many prominent Nazis moved to Britain's zone of occupation  perhaps not our finest hour. The leaders in Washington had a good line in rhetoric about "no safe havens" for Nazis. Yet America's record was poor, not helped when it spirited to the US various rocket scientists who had been Hitler's favourites.

West Germany was left to cleanse itself. It was not the seamless process of confronting the truth that is usually told. As Taylor puts it, Konrad Adenauer's conservative, complacent country took "the sleep cure". The 1950s and early 60s was an era of forgetting. Germany paid billions of Deutschmarks in compensation to Jews, but few Nazis were prosecuted. In 1952, 60% of civil servants in Bavaria were former Nazis. It was in the 60s, when a new generation of Germans began asking their parents "What did you do in the Third Reich?", that the real transformation began and New Germans sensitive to their recent history emerged.

There are weaknesses in this book  attempting to make it topical with references to the occupation of Iraq is entirely superfluous. Yet this is an enthralling narrative about a crucial period of modern Europe's history.