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This has got to be the SCARIEST movie ever made based on the fact that the footage was based on all true occurrences!!!

"Paranormal Activity" was photographed at Peli's home during a seven-day sprint in 2006 with a crew of three that included co-producers Toni Taylor, Peli's then-girlfriend, and Amir Zbeda, one of the filmmaker's best friends.

Peli, whose name means "wonder" or "marvel" in Hebrew, is a native of Israel who dropped out of school there when he was sixteen to start his own software company. Three years later, he and Zbeda emigrated to the U.S., where Peli developed animation and video game programs.

After meeting Taylor and deciding to settle down, Peli went house-hunting during the height of the real estate boom. After being outbid on several houses, they finally managed to land a suburban tract home. "It was the first time I'd ever lived in a house; I'd only ever rented small apartments," says Peli. "In quiet suburbia, I quickly learned that you become conscious of every little noise, especially at night.

"The house, or the ground around it, was settling; things were falling off shelves in the middle of the night," he continues. "I'm not saying there was a ghost or anything, because the incidents, or whatever you would call them, were happening months apart."

And for the next couple of years those nighttime noises - however intermittent - persisted.

"It all got the techno-geek side of me thinking, 'Maybe it would be cool to set up video cameras as a way to figure out what was going on,'" Peli says with a grin. "If those cameras caught something good, I thought that could make a pretty interesting movie."

Once he had written a script, Peli and Taylor decided it was time to make some long-needed home improvements. The couple put in new wood flooring, hung some pictures on the walls and rearranged their bedroom. They even constructed the Ouija board that plays a central role in the narrative.

At a marathon casting session in Hollywood, which yielded 150 aspirants, Peli discovered Katie Featherston and Micah Sloat. "They were among the very few actors we saw who slid right into character when we threw them our standard question, which was 'So tell me why you think your house is haunted?'

"When we put Katie and Micah together, they were absolutely convincing as a couple that had been together for years," Peli continues. "They were telling stories about their vacations, talking about how Katie's mom didn't approve of them living together. They came up with elaborate backstories for their characters on the spot. That was the moment when I actually green-lighted the movie in my head, because I wasn't going to do it unless I could find actors who could pull it off."

Peli's overall goal was to come up with footage that would "feel very organic - I didn't want the actors to worry about lighting or camera angles or anything like that. At the same time I didn't want it to look bad. It was all about the performances and not distracting the actors with filmmaking issues."

The exception is the static shot that's established when Micah sets up the camera on a tripod in his bedroom. "I'd worked on that shot for months," Peli explains. "I was playing with all different types of lighting; it had to be natural. You need to be able to barely see what's happening in the bedroom while still maintaining a degree of clarity for the audience."

Capturing the action outside of his character's bedroom would be up to Sloat who, as it turned out, had been a camera operator for his college TV station. "He framed the shots well - sometimes too well - and I would have to ask him to close the viewfinder and just point and shoot," Peli recalls with a laugh.

Although Peli felt that Micah and Katie needed very little direction, he set some rules: improvisation is okay, but don't use each others' names in vain, and no forced exposition.

Peli applied similar rules of naturalism to sound and production design.

"As is the case with films like 'The Blair Witch Project' and 'Open Water,' I wanted there to be only a little bit of blood in the movie. That's the way I like scary movies; you don't have to go over the top. In the same way, I wanted the sound effects to be subtle. We establish the drone of the room tone and then we document a low-frequency rumble, which is really all you need. The fact that we have a lot of scenes in the movie that are totally quiet forces the audience to be quiet and really pay attention to every little thing. Silence only emphasizes that little tap on the wall you know is not supposed to be there."

Production was so stealthy, Peli notes, the neighbors never knew he was making a movie. Nor, really, did anyone else.

After just seven days of shooting, with support from Taylor and Zbeda, who contributed everything from story ideas to props to stunt design and execution, Peli loaded the footage into Sony Vegas editing software on his home PC.

He submitted "Paranormal Activity" to Screamfest, a boutique festival for cult and homemade horror held each October at the legendary Chinese Theatre on Hollywood Boulevard. Peli admits today he was "terrified" when Screamfest founder Rachel Belofsky "forced" him to send a DVD of his movie to Steve Barton, editor of the popular horror website Dread Central, which turned out to be a good move: Barton and others at the site were the first to praise "Paranormal Activity" and continued to champion it even after its Screamfest debut.

"It quickly became apparent the community was really embracing the movie," says Peli. "People were blogging wildly, asking our little website how they could see the film. It was surreal. It got me thinking about 'Paranormal Activity' in theatrical terms."

A few days after the first screening, Peli recalls being approached by all kinds of people from that first audience - men and women in their 20s, 30s, and 40s. They all reported having problems sleeping at night, sometimes for several nights. "At first I thought people were just using a figure of speech to describe a scary movie," Peli says. "But reports of sleeplessness have persisted after every screening since."

The Screamfest screening helped Peli find an agent at CAA and a subsequent berth at Slamdance. It also attracted the attention of Steven Schneider, an academic-turned-producer whose numerous books on the horror genre brought him to Hollywood in 2003.

Schneider recalls pulling a DVD of "Paranormal Activity" from a pile of submissions and watching it at home alone one night. "I remember thinking, 'Wow, this director is really asking the audience to experience what this couple is feeling,'" he says. "But what really hooked me was that first night scene, after Micah puts his camera on a tripod. We've seen a lot of horror movies with gyrating, hand-held camerawork, so that static shot seemed almost subversive. I could tell the filmmaker intuitively knew how to build suspense. Then the movie slowly sucked me in, my sense of dread kept growing, and Oren's very clinical method of filmmaking - along with the naturalism of Katie and Micah's performances - really affected me. I couldn't sleep."

Schneider shared the movie with producer Jason Blum. Schneider had a deal with Blum's production company while both were based on the Paramount lot. "I recognized that 'Paranormal Activity' was a lot like 'Blair Witch' in the way that it delivered purely on an audience level," Blum says. "Both were designed to be theatrical experiences, exercises in terror told with the intimate medium of video, felt viscerally by large groups of strangers united in a darkened room."

At Slamdance, the film was seen by a young executive from DreamWorks, Ashley Brucks, who recommended it to her boss, Adam Goodman, now president of production at Paramount Pictures.

Paramount Pictures will release the movie this fall, at the same time as Peli begins his next film, an independent thriller called "Area 51," with Blum aboard as producer and Schneider as executive producer.

"One of the things I wanted to do was create something that people could say defined horror for their generation," concludes Peli, "the way after 'Psycho' people said they would never take another shower; after 'Jaws' and 'Open Water' that they would never again swim in the ocean; and after 'Blair Witch' that they would never again go camping in the woods. I figured, well, sleeping at home is something you can't really avoid. So if I can make people scared of being at home, 'Paranormal Activity' might do something."