Aeschylus's The Persians is the earliest Greek play – and therefore the earliest play in the western tradition – to survive complete. It is also quite atypical of Greek tragedy. The plots of other extant tragedies in the Athenian corpus traffic with the deep mythological past. Aeschylus's own Oresteia, for instance, chooses as its starting point the nostos, the return home, of the victorious general Agamemnon after the siege of Troy. Like most other Greek tragedies the first play of the trilogy, Agamemnon, selects a fragment of Homer – in this case the king's violent death, as narrated by Menelaus in the Odyssey – and builds a mighty edifice from it. Or take Euripides's The Trojan Women, a "what happened next" continuation that deals with the horrific fate of the female members of Ilium's royal family after the city's overthrow.

The Persians is quite different. First produced in 472BC, its subject is how the news of a crushing and thoroughly unlikely defeat by the Greeks – which took place a mere eight years before the play was premiered – reached the Persian imperial court. Its near-contemporary setting is unique in surviving Greek drama (though we know of other plays, now lost, that explored similar territory: Phrynichus's Phoenician Women of 476BC was also about the Persian defeat, and written from the Persian point of view.) It is perhaps because The Persians seems to stand outside the main stream of Greek tragedy that it is not often performed, though it did (for obvious reasons) attract some companies around the time of the first and second Iraq wars.

This month, the National Theatre of Wales is taking on the tragedy. The location for the production is especially evocative: a replica village in the Brecon Beacons, originally constructed in order to allow postwar British troops to practise tank warfare in anticipation of the Russians rolling into West Germany. Much of the play will take place against the backdrop of a house lacking a front wall – a location that immediately suggests a theatre set and perhaps even a skene (the Greek stage's carved back wall, which doubled as a costume store). Burnt-out tanks are all around. The director, Mike Pearson, says he has resisted direct contemporary equivalences (unlike, say, Peter Sellars, whose 1993 production likened Xerxes to Saddam Hussein). He wants the landscape and the surroundings to "work on" the audience, but not in any baldly literal way. The production uses video and film – the central messenger's speech, describing the Persian defeat at the Battle of Salamis, is "broadcast" as if on a modern 24-hour news channel – but according to Pearson the action eventually slips away from the contemporary into a more ritualised, even mythical form.

The Persian wars – in which a tiny, fragmented and often argumentative coalition of between 30 and 40 Greek city-states, or poleis, fought off invasion by a mighty empire stretching from Turkey to Iran and from Egypt to the Aral Sea – remains one of the most sensational events in world history. This is partly because it was so unlikely, but chiefly because it prepared the ground for the Athenian enlightenment and its great flowering of philosophy and history, of rhetoric and drama and poetry – ways of organising intellectual and public life that are at the core of so much later western thought.

It is difficult, from the perspective of a populous and fragmented 21st-century society, to begin to imagine what it was like to be among the audience of The Persians when it was premiered at the City Dionysia, Athens's great summer festival. The most dramatic section of the play is its extended account of the crucial sea skirmish, which was to be one of the turning points of the war. The Battle of Salamis is named for the island off the coast of Attica to which Athenian noncombatants had been evacuated. Their city itself had been ravaged and burnt to the ground by the invaders, but at Salamis the Athenians, with their new fleet funded by the state silver mines, demonstrated beyond doubt their naval superiority over the easterners (and indeed over their allies). Manning that miraculous Athenian fleet was its citizen body: Athens had no professional army. The oarsmen were ordinary men – artisans, traders, farmers. Every able-bodied male citizen (together amounting to around 30,000) would likely have fought at some point, either on land or at sea, in this desperate attempt to stave off conquest.

Many, possibly most of the inaugural audience for The Persians, therefore, would have actually taken part in the Persian wars (especially if we accept the scholarly near-consensus that very few women would have been present at the play). Aeschylus himself almost certainly fought: his brother died in the war. Imagine a performance of Gregory Burke's Black Watch, told instead from the enemy's perspective, for which the entire audience is composed of Iraq veterans – eyewitnesses to the events described in the play. Even this analogy is inadequate, however: The Persians was performed in a serious civic event, utterly embedded in the ritual, political and military life of the city. (The festival involved religious observances and later, during the Peloponnesian War, the children of those killed in battle would form a parade.) The choregos – similar to an executive producer – was a young aristocrat named Pericles, soon to be the most famous statesman Athens ever produced. The show took place in a city still scarred by its destruction at the hands of the invaders. It is hard to imagine a more loaded context for a performance.

This information throws into relief what is perhaps the central "problem" of the play, one over which much scholarly ink continues to be spilled. Is The Persians a triumphalist exercise, relishing (perhaps understandably) the sweet taste of victory? Or is it a miraculous essay in empathy, inviting the Athenian audience to pity the defeated in their humiliation?

The play proceeds broadly as follows. The setting is the court at Susa, where a chorus of old men and Atossa, the queen mother, wait for news of the battle. Atossa narrates a dream about two women, one in Persian, one in Greek dress. Her son, King Xerxes, attempts to yoke them to the same chariot but the woman in Greek dress resists and breaks free. Atossa is full of foreboding. A messenger arrives, giving a vivid account of events at Salamis. Atossa goes to the tomb of her dead husband, King Darius, and the chorus raise his ghost (the first such apparition in the history of theatre and a direct ancestor of Shakespeare's ghosts in Macbeth and Hamlet). Darius condemns the rash, violent, boastful arrogance of his son. The defeated Xerxes arrives at the court and the play concludes with an extended kommos, or lament, from the king and chorus.

Kaite O'Reilly, the playwright who has adapted The Persians for the National Theatre of Wales, sums up one side of the argument when she says: "It is extraordinary, as an Athenian, to write from the point of view of the defeated – it could have been written from the point of view of the victorious. There is such power and pathos in the play: compassion, generosity, humility." O'Reilly's vision of the play is close to that of the American scholar AJ Podlecki, who has written that the drama would require of its original audience "a nearly total abstraction from the natural stirrings of pride at bringing about the defeat of this bitter enemy. They had almost to forget who they were and to concentrate on the common humanity which they shared with their former enemy." Thomas Harrison, by contrast, argues that the play is inescapably and unpalatably patriotic. "The Persians . . . is not a work with which we can, or should, identify," he writes. "It is not a play that could be performed – to a liberal audience at least – without blatant anachronism or chilling detachment." He places it alongside works such as Mansfield Park and Heart of Darkness, which are unpalatable by way of their inherent colonialism but still capable of holding our interest as works of art.

Some of the most significant work to have been done on The Persians is by Edith Hall, professor of classics and drama at Royal Holloway, University of London. She calls the play "the first unmistakeable file in the archive of Orientalism, the discourse by which the European imagination has dominated Asia ever since by conceptualising its inhabitants as defeated, luxurious, emotional, cruel and always as dangerous." She points out that the play indicates how the enemy was held in the "collective imagination" of the Athenians – a picture quite different from that of Homer's Iliad, where Asians and Greeks are given a largely even-handed treatment. Aeschylus's Persians are not noble, admirable creatures but instead stand for everything the Greeks, according to their own self-image, are not. They drip with wealth where the Greeks are honourably rugged; they are feebly feminine where the Greeks are virile; they are given to extravagant outpourings where the Greeks are emotionally continent.

How, then, might one begin to approach this troubling play in performance today? A start might be to admit that realism is out of the question. The great classicist Gilbert Murray wrote that The Persians was "a direct historical record" and that it was "not only an eyewitness account but by a combatant, and one who, beside his Greek sense of poetry, had also the peculiar Greek power of describing what he saw". That holds true for the play's tour de force – its vivid, fast-moving account of one of history's great battles. But the world occupied by The Persians is a curious one that combines myth and reality. Dense and muscular in its imagery, with an exotic queen, a portentous dream, a distant location and a sinister supernatural event, this is a world hovering somewhere between the poetry of Homer and the rational enquiry of Herodotus, historian of the Persian wars.

As this play trembles between historical and poetic-mythological worlds (worlds which the Greeks of Aeschylus's time may not have differentiated as sharply as we do) so it seems to flit irresolutely, frustratingly in the imagination. At one moment you can bring to mind a noisy, triumphalist Athenian crowd cheering in the theatre as their enemies' loss is so lovingly described. The next moment those Greeks of the imagination are stopped in their tracks by the pathos of Xerxes's grief. We can never recover the feelings provoked by its first staging (which in any case, if modern audiences are anything to go by, are likely to have been multifarious and contradictory). But thankfully, through the imaginative use of an unusual setting deep in Wales, this troubling, masterful play can also become a drama for our time.

• The Persians is at Cilieni Village, Brecon Beacons, until 21 August. Box office: 01874 611622.