(This story was reported by a journalist whose name has been withheld for security reasons)
* Residents say rebels could dig tunnels under the capital
* Fear of mortar, bomb attacks on election day
* Government launches "Together, We Rebuild" campaign
* President Bashar al-Assad guaranteed a win
DAMASCUS, May 22 (Reuters) - Syria's presidential election is just a fortnight away and Damascenes fear rebels will mark it with fierce mortar bombardment on the capital, or even a devastating tunnel bomb similar to attacks in northern Syria.
The government has launched its "Together, We Rebuild" campaign that now peppers the capital's streets with posters that feature hands clasped together.
But some residents of the capital anticipate more destruction and say talk of rebuilding is premature. Daily, they hear blasts of government bombardment onto rebellious suburbs and the booms of warplanes in the sky on bombing runs.
To retaliate, rebels use mortars and car bombs to hit the centre of the capital, an area a few miles wide that is firmly in government hands. Earlier this month, 27 mortar and rocket attacks hit on a single day and Damascenes fear rebels will rain hell on the capital on election day to protest the event.
"If that day is the rebels' new benchmark for showing their wrath, and I think it is, then God help us with these elections," said Mahmoud, 37, a merchant by day and chauffeur by night.
A new fear is that rebels are digging tunnels into Damascus, either to smuggle themselves and weapons into the heart of Assad's stronghold or to pack explosives under the capital.
Such "tunnel bombs" are a tactic rebels have started using in recent months on military targets in the north, including a hotel used by soldiers in Aleppo and a base in Idlib province. Fighters dig tunnels hundreds of metres long to plant explosives that obliterate an entire area.
Tunnel bombs have not yet been used in Damascus, but residents fear they could reduce a whole neighbourhood of tower blocks to rubble and kill hundreds.
Earlier this month, state security guards searched basements of dozens of buildings in several Damascus neighbourhoods including affluent Malki, home to senior government officials. They were looking for signs of tunnelling, residents say.
Authorities have levied a "reconstruction tax" that shows up on the monthly phone bill in small print, on the utilities bill, and even, to some soldiers' outrage, as a deduction from their already meagre pay.
"In what kind of crazy world do I get sent to shoot rockets at buildings then pay to rebuild them?" said Hassan, a 19-year-old conscript.
Most major businesses and high-profile merchants in Damascus have put up banners endorsing Bashar al-Assad's presidency. The larger-than-life posters of Assad striking various military or stern postures far overwhelm the handful of campaign slogans put forth by the two other presidential candidates.
This month, the city streets are also paralysed with marches in support of Assad, adding to gridlock that developed over the past two years as the government shut down major avenues and placed armed men at checkpoints on most streets.
Even Damascenes who support the government express doubt about the prospects for a genuine election in war time, although they say the vote is needed to move beyond the conflict.
"Of course the whole thing is rigged. It's a film, but it's the only way out of our crisis," said Ayman, 35, a government supporter. He suggested the result of the election was already a foregone conclusion: "Assad will win 70 percent, and each of the other (two) candidates will win 15 percent. You'll see."
Anti-Assad residents, such as middle-aged Ammar, an entrepreneur and father of two, say they might consider boycotting the vote but fear potential consequences.
"If I don't vote, will there be a permanent note in my record? Does it mean that when I'm stopped at a checkpoint, they can punch in my ID into their computer and discover that I've abstained? I don't know," he said.
Pockets of normalcy remain in Damascus, despite three years of fighting that has killed 160,000 people, driven nearly a third of Syrians from their homes and cut the capital off from its war zone suburbs.
In the city centre, a packed gym offers a spinning class with techno music that blares out onto the street. Not too far from Assad's residence, the Bulgarian Cultural Centre offers salsa and tango classes.
Some Damascenes say they conduct most of their business at night because fewer rockets seem to land after dark - perhaps because rebels are careful not to give away their firing positions with flares that can be seen in the night sky.
Packed coffee shops continue to cater to young people, many of them unemployed, spending hours sipping coffee and tea and chain smoking. Some are college students who have delayed their graduation by purposely failing a course or two in order to postpone mandatory military service.
Asked to describe his life lately, 25-year-old Motaz, who is a chemistry major, said: "Frozen. My entire generation is suspended in time."
Among the crowd that consumes alcohol, a minority in traditional Damascus, drinking get-togethers sometimes start in mid-afternoon in order to wrap up the party by 10 pm, so that guests can get home through streets choked with checkpoints.
The city has been militarised - dozens of shops have dropped their usual merchandise and instead now cater to soldiers and state security service members. One shop advertised a sale on shoulder-worn gun holsters and hot weather combat boots.
The war-time economy is hitting small businesses. One cafe owner says he freezes bread and reheats it, and is cutting down on "tahini", or sesame seed butter, a key ingredient in hummus.
"It's a little bland, but it's war-time hummus." (Editing by Oliver Holmes and Peter Graff)
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