[July 2012] I can recommend this shop at the south east corner of Plaza Mayor called El Arco Artesania.
Although it is in the middle of the tourist area, the goods they sell are a far cry from the swords, lace and castanets of mass productions.
They all are handmade with the feel of Spain.
I found a ceramic fat flamenco dancer doll sitting at a corner of the shelf.
It is really cute! The middle aged woman took care of the goods and wrapped it nicely, which made me feel good, too.
This shop was listed in my guidebook and it was worth visiting.
Reading your guidebook thoroughly brings you good luck.