Oil-rich Abu Dhabi hopes to attract millions of "cultural tourists," while friendly rival emirate Dubai positions itself as a shopping and finance mecca.

Each month, 25,000 people from around the globe arrive in the United Arab Emirates, seeking jobs, contracts, and political stability. Walk past the gleaming new skyscrapers, government buildings, fountains, and shopping malls that line the immaculate tree-lined corniche in Abu Dhabi—or those in neighboring Dubai, only a 90-minute drive away—and you’ll hear dozens of languages. Most people wear Western clothes; you see relatively few dishdashas, the flowing white robes usually worn by Arab men in the Persian Gulf. There are no bearded mullahs on the streets or on the far more crowded highways. There are lots of women drivers, though, some with headscarves, some without.

Only two decades ago, few foreigners would have viewed this loose federation of seven independent sheikhdoms, strung out along the southeastern corner of the Persian Gulf, as a land of opportunity. But thanks to the world’s fifth-largest reserves of crude oil and natural gas, an estimated $1 trillion of investment abroad, and plans to spend at least $200 billion over the next decade on infrastructure and other grandiose projects in Abu Dhabi and Dubai, the two most dynamic emirates, the UAE has burst into the world’s—and belatedly, America’s—consciousness.

Most Americans had heard of Dubai, the most frantic of the seven emirates—and especially of its over-the-top city of the same name: Disneyland on steroids, or “Donald Trump on acid,” as one writer called it. But far fewer knew much about either the emirate of Abu Dhabi or its eponymous capital city (also the capital of the federation as a whole). Recently, however, Abu Dhabi—with 95 percent of the UAE’s oil, 85 percent of its land, and over half of its gross domestic product—has emerged from the shadow of its more flamboyant neighboring sheikhdom and friendly rival. In late November, the normally risk-averse emirate’s Abu Dhabi Investment Authority, the world’s largest and most secretive sovereign wealth fund, bought a 4.9 percent share of troubled Citigroup. That was just one of hundreds of American and other foreign companies in which the diversifying emirate has invested in recent years.

While the Citigroup purchase highlights its growing financial clout, Abu Dhabi’s most remarkable investment is in human development. The emirate is determined to modernize its young, traditionally conservative, underskilled population—to mold future citizens secure in their Islamic heritage but able to flourish in an increasingly globalized and diverse world. Radical Islamists want to drag Muslims back to the Dark Ages; Muslim Abu Dhabi is racing into the future. True, Abu Dhabi, like the UAE as a whole, has a system of government that is tribal and undemocratic, blending family, business, and administrative interests in inseparable and impenetrable ways. But the emirate’s commitment to the education and cultural advancement of its people makes it a relatively bright spot in the Arab Middle East, where oil wealth has too often brought conflict and misery.

Talk with Abu Dhabi’s Crown Prince Mohammed bin Zayed al-Nahyan and members of his brain trust of young advisors, and you’ll hear a lot about cultural transformation. “We’re in a war with those who have hijacked our religion,” the 46-year-old crown prince tells me. “To succeed, we must also eradicate concepts like wasta and baksheesh—family influence and bribes,” both widespread Middle Eastern traditions. “And we are succeeding.”

To make itself the region’s true cultural hub, the emirate has forged surprising partnerships, and is negotiating others, with some of the world’s leading cultural and academic institutions, several based in New York. In 2006, for instance, Abu Dhabi commissioned the Guggenheim Museum to construct a vast, 450,000-square-foot branch in the emirate. (Abu Dhabi shares Dubai’s obsession with gigantism: having the world’s “tallest” skyscrapers, the “best” hotels, the “largest” shopping malls, and so on.) This past November came the announcement for New York University–Abu Dhabi (NYUAD), which will be the first comprehensive liberal arts campus that any major American research university establishes abroad. The emirate has also recruited the Sorbonne to create a French-language university and inked a whopping $1.3 billion deal with the Louvre to use its name, build a classical art museum, and share and jointly acquire art. Further, Abu Dhabi is talking with the New York Public Library and several other great libraries about opening branches, and it has approached New York’s Metropolitan Opera and Lincoln Center about a partnership, though executives say that no deal is imminent.

The home for these projects will be a spectacular 640-acre cultural complex on Saadiyat (“happiness” in Arabic) Island, just off the coast of the capital. Abu Dhabi is investing $27 billion in the development, with some of the world’s most influential architects, including Frank Gehry, designing its landmark museums and other new buildings. “This is a hugely exciting project on so many levels,” says Mubarak Hamad al-Muhairi, the 38-year-old director general of the Abu Dhabi Tourism Authority, which oversees the complex.

This ambitious venture raises difficult questions. Did Dubai’s unsuccessful 2006 effort to buy a company that operated six U.S. ports, which infuriated many American politicians, increase Abu Dhabi’s emphasis on cultural outreach? Further, culture has always followed money—where would Florence have been without the Medicis?—but can money really buy culture? That is, will the museums and campuses and theaters edify and enlighten not only the 3 million yearly “cultural tourists” whom Abu Dhabi hopes to attract by 2015, but also the UAE’s 825,000 citizens? The government promoters have no doubt. The complex, they feel, is essential to closing what one advisor calls the “knowledge gap” between Abu Dhabi and the West and countering Islamist extremism. “We want an impact on our society, not just on visitors,” says the American-educated al-Muhairi over cappuccinos topped with chocolate and gold flakes at the majestic Emirates Palace Hotel. “We are younger than Cairo, Beirut, or Baghdad. We can take a new vision forward and hope that what our people see in these museums will inspire them to produce their own art. So we are not ‘buying culture.’ ”

“It’s better for all of us that Saadiyat be a cultural complex than a naval base,” agrees Bassem Kudsi, who went to college in Oregon before returning to Abu Dhabi to work for its Authority for Culture and Heritage. “My jihad is culture: let’s let a thousand festivals bloom! What our region needs is more culture and less conflict.”

Abu Dhabi’s rise—and the UAE’s transformation from one of the world’s poorest, most forlorn strips of desert to the supercharged society it is today—has to do with oil, of course. Yet while oil was a necessary condition, it wasn’t sufficient. Many other oil-rich societies, after all, have failed to achieve such staggering prosperity.

Historian and businessman Mohammed al-Fahim remembers a time only 40 years ago when Abu Dhabians were dirt-poor, though oil had begun to flow and the ruler’s coffers were filling. In his book, From Rags to Riches: A Story of Abu Dhabi, al-Fahim recounts living hand to mouth, working in pearl fishing and the declining Bedouin livestock trade. As recently as 1962, Abu Dhabians resided in palm-frond huts that lacked clean water, toilets, and electricity. There was one paved road. Few could read or write. Al-Fahim’s younger sister died of burns sustained in a fire, and his 30-year-old mother died in childbirth, because his town had no doctors or nurses.

Abu Dhabi’s turning point, al-Fahim observes, was August 1966, when Sheikh Zayed bin Sultan al-Nahyan came to power with British support. Two years later, when the British, largely for financial reasons, announced plans to withdraw from the Trucial States—the Persian Gulf sheikhdoms, including Abu Dhabi, that they’d controlled for 170 years—Zayed doggedly sought an alliance with the other sheikhs. Bahrain and Qatar opted for independence, but Zayed wooed the others into a federation by promising to share oil with the five emirates that had none, by granting their ruling families considerable autonomy, and by promising to divide key federal posts among the families. So while his clan, the al-Nahyans, continues to rule Abu Dhabi (the sheikh himself died in 2004), the Maktoums have long presided over Dubai, free to pursue their own economic vision (which has been to turn their emirate, producing fewer than 100,000 barrels of oil per day to Abu Dhabi’s 2.7 million, into a world-class financial hub). Zayed’s commitment to his pledges gave the UAE political stability; Emiratis today revere him as their George Washington. And that stability in turn helped Abu Dhabi and the rest of the UAE make effective use of the area’s abundant oil and grow very, very wealthy.

The tiny native population—Emiratis are just under 20 percent of the UAE’s 4.5 million people, with the rest of the population made up of guest workers—has fully shared in the prosperity. Per-capita income for the 420,000 or so Abu Dhabians, for instance, is a healthy $52,500. And until the 1980s, when land finally ran out, Abu Dhabi gave each citizen free property to develop as he saw fit. “For Emiratis, there is free education, free health care, and many other benefits,” notes Yousef al-Otaiba, 34, the director of international affairs for the crown prince’s office.

Not that there aren’t problems, including a bloated state sector. But Abu Dhabi’s “Policy Agenda, 2007–2009,” prepared by the emirate’s executive council, would on paper please Milton Friedman. Privatization, for example, is one of the agenda’s major “pillars” of reform—a sensible priority, since the private sector today accounts for only 17.8 percent of GDP. Competitive bids are now flooding in to provide the goods and services that have been the government’s responsibility, though foreigners still need Emirati partners to do business here. Even the fire department is up for outsourcing. The emirate wants to slash public-sector employment from 65,000 to 18,000 by the end of 2008, while helping ignite an explosion of private-sector jobs, especially for women and younger nationals, among whom unemployment rates are high. (Paul Dyer, of the Dubai School of Government, a partner of Harvard’s John F. Kennedy School, puts unemployment among young UAE citizens at 60 percent.)

In all its joint ventures, Abu Dhabi has been exacting in its choice of partners. “We’ve learned from watching others,” said Ahmed Ali al-Sayegh, a crown prince confidant who founded Abu Dhabi’s largest land-development company, Aldar Properties. He doesn’t mention (though he clearly has in mind) Dubai, with its sinister underbelly of Russian mafia, drug lords, militant Islamists, and other trouble seekers who call that city-state home. “We don’t want to tie up with the wrong people,” he says.

Improving health care is a second reform pillar. It may be free for Emiratis, but the UAE’s health-care system remains substandard. By 2004, for instance, Abu Dhabi was spending a quarter of its total health-care dirham (the UAE’s dollar-pegged currency) on subsidizing advanced medical treatment abroad for citizens who couldn’t get it at home. Nearly 85 percent of breast-cancer cases are diagnosed and treated “at a very late stage when the chance for a cure is low, compared to only 20 percent in the USA and 30 percent in Europe,” the policy agenda states. Rates of Type II diabetes in adults and of obesity and asthma in children are among the world’s highest. To help improve the level of care, Abu Dhabi is paying renowned Western health-care providers Johns Hopkins and the Cleveland Clinic to build new hospitals and to manage its existing medical institutions, as well as to train more Abu Dhabian doctors and nurses: at present, only 10 percent of Abu Dhabi’s doctors are nationals.

Abu Dhabi also faces a housing shortage, which is driving up rents—some 20 to 30 percent last year alone. Foreign workers and even some Emiratis are feeling the squeeze. Last October, the emirate capped rent hikes at 7 percent per year, but as more units come on the market, it expects inflationary pressure to ease. Last year, Abu Dhabi also began to permit foreigners essentially to own apartments within certain zones, and so escape the skyrocketing rents. But the vagueness of property titles and transfer provisions has made buyers wary, reports the Financial Times.

The UAE’s importation of millions of foreign workers, the majority from India and Pakistan, is generating tensions, too. Human Rights Watch accuses both Dubai and Abu Dhabi of looking the other way when some employers confiscate workers’ passports (technically against UAE law) or force potential hires to hand over exorbitant fees to land jobs paying only $150 to $200 a month. In its latest report, Human Rights Watch suggests an even more troubling possibility: unreported worker deaths at Dubai construction sites.

Hadi Ghaemi, a human rights advocate who helped write the report, attributes the labor problems to conflict of interest. When the UAE’s current minister of labor ruled that none of his employees could have an interest in more than ten companies, Ghaemi points out, the decision provoked mass resignations. “The ministries responsible for [workers’] well-being should not also be owners of the companies that employ them,” Ghaemi says. Since Abu Dhabi and the rest of the UAE are marketing themselves as enlightened modern societies, he concludes, “it’s time they recognized that workers’ rights are part of such a culture.”

There are signs, however, that quiet prodding from Abu Dhabi’s Western cultural partners is having a beneficial effect. In his discussions with government officials, Frank Gehry, the architect building the gigantic Guggenheim Abu Dhabi, has insisted on the need to respect workers’ rights, Human Rights Watch reports. “While nothing we do guarantees that workers will be well treated, Sheikh Sultan has said he agrees with us,” Gehry tells me, referring to Sultan bin Tahnoon al-Nahyan, who chairs the tourism authority overseeing the project. A “gentlemen’s agreement” is now in place on workers’ rights, Gehry says. And since human rights monitors are now “on the ground” in Abu Dhabi, he adds, “if rights are violated, I assume we’ll know about it.”

The labor problems have complicated Abu Dhabi’s outreach to Western institutions, despite its seductively deep pockets. Cultural and political differences have raised obstacles, too. Earlier this year, for example, more than 4,600 French academics, archaeologists, art historians, and others signed a petition opposing the Louvre partnership, saying that France’s cultural patrimony was “not for sale.” Ultimately, the $1.3 billion package proved irresistible to the cash-strapped Louvre. To assuage concerns about artistic censorship, the French government created a special advisory panel to ensure that the Louvre Abu Dhabi observes its Parisian parent’s artistic standards. Still, the UAE has reserved the right to refuse art that offends local sensibilities and religious or cultural norms.

American critics have usually been more discreet. But then, Abu Dhabi’s American partners have also been less transparent than their French counterparts about the size, value, and precise content of their deals. Guggenheim director Thomas Krens, who has promoted his museum as a brand and spearheaded the creation of four more Guggenheim museums at home and abroad, was recently quoted as saying that Abu Dhabi had agreed to give the museum $600 million over the next ten years to acquire art. But neither he nor Gehry would comment on the size of the entire package, rumored to be well over $1 billion if the cost of the new museum on Saadiyat is included.

New York University has refused to disclose how much Abu Dhabi will pay it to build, staff, and operate NYU–Abu Dhabi, which will serve at least 2,000 undergraduates and 800 graduate students. Nor will it disclose the nature of the ill-defined “investment in faculty and programming” that Abu Dhabi will give to NYU’s main campus at Washington Square. We do know that classes at NYUAD, which plans to open in 2010, will be coeducational and in English. Mariet Westermann, the campus’s new vice chancellor, says that the agreement gives NYU “full control” over student affairs, academic standards and content, and faculty and student recruitment. “But entry regulations and visa policies are set by the foreign government, not by us,” she adds.

Those policies may prove controversial. And there may be cultural and legal challenges as well. In early November, the international press covered the alleged rape of a 15-year-old French male student in Dubai by three men. Press accounts said that local officials tried to discourage the boy from pressing charges and pressured him to say that he was homosexual. In 2006, again in Dubai, 12 gay Arab men were arrested at a secret gay wedding, imprisoned, and threatened with forced hormone treatments. Such incidents led several gay students to challenge NYU president John Sexton about the partnership in November.

Of greater concern to some Jewish NYU students and faculty is the UAE’s behavior toward Israel. According to the Forward, recent U.S. Commerce Department figures show that in 2006, American companies reported 486 requests from UAE-based companies to comply with the Arab League’s boycott of Israel—more than three times the number reported from any other Arab state. But when one NYU trustee reportedly objected that the Abu Dhabi deal would appear to condone the policies of a state that boycotts Israel, Sexton produced a letter of support from Abraham Foxman, the national director of the Anti-Defamation League, a leading Jewish organization. “Abu Dhabi and Dubai are moving towards greater openness and tolerance,” says Foxman. “While they haven’t come far enough, bringing American institutions into close contact with them can only strengthen that trend.”

American Jewish groups have generally been reluctant to criticize the UAE, convinced, like Foxman, that this wealthy young country, unlike some of its neighbors, is trying to promote greater tolerance and pluralism. They were silent when Israeli delegations of baggage handlers and dentists were not permitted to attend their associations’ annual meetings, held in October in Dubai. Nor did they or the Israeli government protest when, after Egyptian filmmakers complained, an Israeli film invited to be shown in Abu Dhabi’s first international film festival in October was disinvited. After two delegations of Jewish organizations traveled to the UAE in 2007—in a tour that also included Qatar, Kuwait, and Bahrain—the American Jewish Committee’s Jason Isaacson praised Abu Dhabi and Dubai. “We feel we have a good line of communications with the UAE on a range of issues and can express our views to policy makers,” he said.

Some experts think that Abu Dhabi is pushing its outreach campaign so hard because the need for educational reform is so urgent—as it is throughout the UAE. “The UAE has the best indicators for economic growth, and some of the worst for educational growth,” says Christopher Davidson, a UAE expert at Durham University in Britain. Budgets for teachers and campuses have been frozen for years, he asserts; expatriate teachers have been paid 10 to 50 percent less than their counterparts elsewhere in the region. And teaching, he says, is not a high-status job within the UAE.

The government apparently agrees with at least part of his assessment. The new federal budget unveiled in late November, says the Economist Intelligence Unit’s David Butter, provides a 70 percent salary increase for civil servants, including many teachers. And at the college level, Abu Dhabi is pouring money not only into its partnerships, but also into its existing colleges, where women greatly outnumber men. A visit to the women’s college at the Higher Colleges of Technology, a largely British-staffed technical school with separate campuses for men and women, shows how progressive Abu Dhabi is compared with Saudi Arabia and some other neighbors. Though the young women wear traditional dress—black fitted abayas (cloaks) and jewel-encrusted shaylahs (black silk scarves)—all say that they want and expect to work alongside men after graduation. All speak good English, the college’s teaching language. All drive cars. All are outspoken about their political views—strongly opposing the U.S. invasion of Iraq, for instance, but often adding that they have visited America or want to. And most feel that they will be able to fulfill their professional and personal dreams. “There is nothing to stop us here, except our own limitations,” says Souad al-Housari, a business major.

For all Dubai’s glitz and Abu Dhabi’s more controlled frenzy, this is a tough neighborhood. With Wahhabi-dominated Saudi Arabia to the west and Iran just across the Persian Gulf to the north, the UAE’s prosperity, and even its survival, are by no means guaranteed. Despite close trading ties between Iran and the UAE, many Emiratis have not forgotten that Iran occupies three islands that both countries have claimed since Iran first grabbed them in 1971, on the eve of the UAE’s independence.

The United States, which has replaced Britain as the federation’s unofficial guardian, has adopted a low profile at the UAE’s insistence. While America does not station troops in the emirates (as it does in neighboring Qatar) or base ships there (as it does in Bahrain, long the home of the Fifth Fleet), American nuclear carriers routinely berth at the Dubai port of Jebel Ali, since they are too large for Bahrain. The U.S. Navy puts more sailors ashore for more liberty days a year at Jebel Ali than at any other foreign port. The White House is selling the UAE $9.4 billion worth of state-of-the-art air defense systems and components, including the Patriot missile, E-2C aircraft upgrades, and support equipment. The federation already owns and flies the world’s most advanced versions of the F-16.

Internal threats loom as well. “They know they are just one bomb away from seeing a lot of death and capital flight,” says Greg Gause III, an expert on the Persian Gulf who teaches at the University of Vermont. Two of the 19 men who staged the 9/11 attacks were UAE nationals, after all. As a result, the UAE has invested heavily in border control and quiet internal security. Nationals flying back home slide smart ID cards through readers, punch in a PIN, have their irises scanned, and are through security in less than a minute—if there’s no problem. Last year, former White House counterterrorism coordinator Richard Clarke reports in a soon-to-be-published book on how to improve American security, this system helped the UAE catch more than 20,000 people trying to enter under assumed identities.

Rifts within the federation could also threaten stability. So far, the competition between Abu Dhabi and Dubai has at worst produced some overlapping or duplicative projects that both emirates can easily afford. For instance, after Abu Dhabi invited 16 Nobel laureates and 150-odd intellectuals and journalists—including me—for a three-day Festival of Thinkers at the government’s expense, Dubai responded with its own Knowledge Conference to promote education.

But some analysts fear that this friendly rivalry could turn ugly. In a forthcoming book, Davidson suggests that because Abu Dhabi and Dubai have adopted different visions of their future, the UAE may break apart. “Dubai is positioning itself to be a truly global entrepôt state and feels constrained by Abu Dhabi’s caution,” he says. “Dubai is run as a business that doesn’t need or want a military and other trappings of a traditional state, whereas Abu Dhabi sees itself as an enlightened but still traditional Arab country and the region’s cultural and educational hub—a modern Arab Manhattan with Islam at its center and where Arabic is still spoken.”

Eckart Woertz, of the Gulf Research Center, a Dubai-based think tank, doubts that the federation will dissolve anytime soon. But he argues that neither Abu Dhabi nor Dubai is likely to produce a truly open, innovative society. “The liberal lifestyle needed for that to develop organically does not exist here, given the strong conservative traditions and the UAE’s proximity to Saudi Arabia, where fundamentalist mind-sets are widespread,” he says. Moreover, he argues, the UAE’s obsessive materialism will trump its devotion to culture. “They are more about Ferrari, Gucci, and Prada than about Einstein, Plato, or Nietzsche.”

Further, while the print press, broadcasters, and blogosphere are freer here than in other Arab countries—Sheikh Mohammed of Dubai recently announced that no journalists would be jailed for what they wrote—films are still heavily censored. “Borat never made it to the UAE,” Woertz notes. But self-censorship, critics agree, is by far the greater challenge. One scholar summed up the unofficial taboos as “the three Is”—Islam, Israel, and internal affairs. “How can you have an open, dynamic society when none of these can be debated?” he said.

To their supporters, however, Abu Dhabi and the rest of the UAE offer the only plausible antidote to the spread of the Islamists’ grim destructive militancy. “Who is more spectacular: Osama bin Laden, who destroyed two towers? Or the UAE, which has built over a thousand?” asked Jamil Mroue, a Lebanese journalist and a newcomer to Abu Dhabi, as we gazed out at the tranquil gulf from his garden over Coke and shish kebab one night last fall. “Whose road will the Arabs travel: the one paved by MBZ”—Crown Prince Mohammed bin Zayed—“to conquer time? Or Osama’s that seeks to reverse it?”

The UAE, he continues, is “not imposing anything on anyone else. It has been plowing money into education and culture to nurture its own organic flowering of ideas and possibilities. Okay, this is not a democracy. There are no political parties, and its first election last year was only for advisory posts. But there is plenty of time for democracy—later. I would rather take my chances here than in the wealthiest of Islamic republics.”

Judith Miller, a contributing editor of City Journal, is a Pulitzer Prize–winning journalist who writes about national security issues. She has written or coauthored four books, including Germs: Biological Weapons and America’s Secret War.