Just finished The City & the City, a Hugo-nominated novel by China Mieville. This is the first book of his, so I have not experienced his style--it's not for everyone, but I didn't mind. And the book itself is fascinating. The setting dominates the story completely, and drives it effectively. It consists of two cities, Beszel and Ul Qoma, that are barely civil to each other and intricately interleaved. Citizens are trained from birth not to notice the goings-on in the "other" city spliced through. The division is mostly maintained by psychology and behavior, though there is a possibly supernatural element thrown it that supposedly watches constantly for transgressions. In this bizarre setting a murder mystery takes place.
I thoroughly enjoyed the book and found the speculative elements very strong. I think it's a real contender for the prize. I found myself looking for real-world analogues--in the book, the characters specifically reject comparisons to Jerusalem or East and West Berlin, though I think the situation in the Palestinian territories might somehow compare. Settlements interleave intricately with Palestinian territory, most likely creating a mix of ostentatious ignoring, violence, and some secret trade. It's well worth a read, in that it does what speculative fiction should do--make you think.