I finally booked the Hostal Chelo . Does anybody know if there's any particular good restaurants nearby. Also, are there bakeries for bread / croissants in the morning?

Lastly, does anybody know where the arab area is im Madrid; i.e. Moroccan restaurants, shops. etc. I visited Morocca last year and would love to have some ethnic arab cuisine again.

El Horno de San Onofre it's a great bakery. You'll find it at Hortaleza, 9.

Also in Hortaleza you'll find Vivares, a good restaurant with "Menú del dia" (the best choice if you are on a budget).

Another recommendation is Cafetería Rocablanca at Fuencarral, 46. They have good "chocolate with churros" and it's quite cheap if you want to try something typical for breakfast.

There is a Moroccan restaurant called Al-Hoceima at Farmacia, 8. At LaNetro.com they say pricesa are under 15 euros / person.