The area around Recife was one of the first in Brazil to be settled by the Portuguese Crown. In 1537, John III of Portugal divided Brazil into hereditary captaincies (capitanias hereditárias, in Portuguese); the Portuguese realized that they had no human or financial resources to invest in such a large and distant colony, and decided to assign this task to private entrepreneurs, called Donatários (this system had already been successful in the settlement of the Portuguese colonies in Africa).
Because of several problems (the most obvious being the lack of support from the Portuguese metropolis), most Captaincies failed. One of the few to prosper was the Captaincy of Pernambuco, which was assigned to Duarte Coelho Pereira (the man who founded Olinda which has its historic town center considered a World Heritage site by UNESCO and became famous for expressing his enchantment with the beauty of the place, giving the name to the city)."Campo das Princesas" State Government Palace. Legislative Assembly of Pernambuco.
Pernambuco prospered from the sugarcane industry (beet sugar was not industrially produced in Europe until the beginning of the 19th century). At the time, in Europe, sugarcane plantations could be grown only in Andalusia and the Algarve; in the 1420s, sugarcane was carried to the Canary Islands, Madeira and the Azores; the sugar from Brazil was very much appreciated in Europe. Duarte Coelho found in Pernambuco plenty of fertile land and an excellent climate for the cultivation of cane; all he needed was labor to work the crops and to keep the "engenhos" (rustic wooden machinery) moving.
From 1580 to 1640, the kingdoms of Spain and Portugal were unified under the rule of the former. Spain was engaged in a war against the Netherlands, and determined that the Dutch, who were the main distributors of Brazilian sugar in Europe, would be prohibited from coming to Brazil.
The Dutch decided to invade several sugar producing cities in Brazil, including Salvador and Natal. From 1630 to 1654, they took control of Recife and Olinda, making Recife the new capital of Dutch Brazil, the city of Mauritsstad. During this period, Mauritsstad became one of the most cosmopolitan cities of the world. Unlike the Portuguese, the Dutch did not prohibit Judaism. The first Jewish community and the first synagogue in the Americas—Kahal Zur Israel Synagogue—was founded in the city.
The inhabitants fought on their own to expel the Dutch, being helped by the involvement of the Dutch in the First Anglo-Dutch War. This was known as the Insurreição Pernambucana (Pernambucan Insurrection). Most of the Jews fled to Amsterdam; a small number fled to New Amsterdam (now known as New York City), establishing the first Jewish community there.
During the 18th century, riots spread throughout the city, in which the rich farmers of Olinda and the traders from Recife clashed. Recife had a clear advantage in relation to Olinda: Olinda has no harbour, while Recife's Harbor is one of the largest on the Atlantic Ocean. Recife's victory asserted the supremacy of its bourgeoisie over the decadent sugar aristocrats of Olinda. This was a decisive factor for Recife's growth. Recife is now a large city whereas Olinda is a small historical town. Recife is a historical city, distinguished by the opulence of its colonial buildings, with its colonization rooted in different nations; Portugal, the Netherlands, France, England.