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Dubai is also a rare success story in the Middle East, a region with a history of failure and stagnation. Whether Dubai represents a glitzy anomaly or a model to be copied by other Arab nations is a question worth asking these days, as the Islamic world struggles to cope with modernization. Abdulrahman al Rashid, a Saudi journalist and director of the Al Arabiya news channel, put it this way: "Dubai is putting pressure on the rest of the Arab and Muslim world. People are beginning to ask their governments: If Dubai can do it, why can’t we?"

Dubai, it must be said, is like no other place on Earth. This is the world capital of living large; the air practically crackles with a volatile mix of excess and opportunity. It's the kind of place where tennis stars Andre Agassi and Roger Federer play an exhibition match on the rooftop helipad of the opulent Burj al Arab megahotel; where diamond-encrusted cell phones do a brisk business at $10,000 apiece; where millions of people a year fly in just to go shopping.

Over the past decade, I've traveled to Dubai often and grown to appreciate the quirky multiculturalism of a city where one can eat in an Italian restaurant run by an Egyptian, with an Indian head chef and Filipino waiters who break into operettas every half hour. Or watch, in the wee hours, a mob of English expatriates weaving home from a pub as the Muslim call to morning prayer echoes through the streets.

Many Americans first heard of Dubai, one of seven emirates that make up the United Arab Emirates (U.A.E.), when a state-owned company, Dubai Ports World, purchased a British firm that managed six U.S. ports. Some members of Congress reacted with alarm, charging, correctly, that the 9/11 conspirators used Dubai as a key financial transit point. Others supported the deal, noting that the U.A.E. had proved a staunch ally in the war on terror, and that U.A.E. ports host more U.S. Navy ships than any port outside the United States. In the end Dubai decided to pass on managing the U.S. ports. "We're too busy for politics," Sultan bin Sulayem, the head of Dubai Ports World, told me. "The Americans didn't want us on that deal. Fine. We move on. There's lots of business to be done."

Indeed. Dubai has created one of the most dynamic business environments in the world. "It's not just the buildings and the islands and the hotels," says Ali al Shihabi, the Princeton-educated director of a leading investment bank. "It's the soft stuff: the laws, the regulations, the liberal social environment." With no corporate or income taxes, a top-notch banking system, and a legal code that favors property and ownership, Dubai embodies old Sheikh Rashid's motto: "What's good for the merchants is good for Dubai."

And then there's his son, Sheikh Mohammed, the 57-year-old ruler of Dubai, whom Edmund O'Sullivan, editor of the Middle East Economic Digest, calls a "radical modernizer" and the "most significant figure in Arabia since King Abdulaziz"—the founder of modern Saudi Arabia who leveraged his country's oil reserves to become a major world player.

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