(FORTUNE Magazine) – What's so great about Dallas?

Let's start with the obvious pluses, like weather. Okay, north Texas has the occasional tornado. But temperatures average about 66 degrees for the year (and in July and August, thank goodness, there's no place in town that isn't air-conditioned). Many locals don't even own a winter coat. Then add the fact that there's no state income tax on either businesses or individuals. (On our list, the only town outside Texas that can say the same is Seattle.) The Dallas economy is growing at 4.8% annually, easily outpacing the national average.

Dig a bit deeper, and you'll find that "Big D"--plunked down in the middle of a vast plain--is the least densely populated metropolitan area in the world, and its cost of living is the second lowest on our list of the ten best cities for business. (Only Austin's is lower.) Dallas has a symphony, an opera company, some good museums, a Stanley Cup-winning hockey team, the Dallas Cowboys, and more restaurants per capita than New York City. This all helps attract workers from other parts of the country--like the 1,400 people that Chase Manhattan's global investor services division will shortly begin herding down from New York.

But if you really want to understand what makes Dallas tick, take a look at the airport. Almost 30 years ago a small band of executives and city planners hatched a grand scheme to make their city a world-class transportation and distribution hub. They wanted to build a series of canals that would link Dallas with Houston's port, 244 miles away. But, recalls James Erwin, now a vice chairman of Bank of America and head of the Greater Dallas Chamber of Commerce, "it turned out it just wasn't practical for us to try to be a seaport."

So did they give up on the world-class hub thing? Heck, no. Instead, they built an airport bigger than Manhattan Island. You could fit New York's JFK, Chicago's O'Hare, and Los Angeles' LAX into it and still have room to spare. Dallas/Fort Worth is the world's third-busiest cargo airport and serves more than 60 million passengers a year (with a 76% increase in international passengers since 1993)--and it isn't even finished yet. A seven-year, $2.5 billion capital improvement plan, financed by a bond issue, will make DFW even more humongous.

If you've been there, you know that on most days DFW runs like a Swiss watch, so it's not nearly as annoying as the airports of some other cities on our list. To business people who need to travel but don't want to spend all their waking hours doing so, that means a lot. So does Dallas' Central Time zone location. Says Erwin: "Because of the time differences, I can fly to New York just for the day, or leave here in the afternoon for a dinner meeting in L.A."

In fact, every city on our list of the top ten has its own local equivalent of DFW--a secret weapon in plain sight. In Boston, it's the brainpower thrown off by 83 colleges and universities. Bright people from all over the world show up to go to school. Then they like the area so much, they never leave. In Denver, substitute "skiing" for "school," and the same applies. Colorado's capital offers low taxes, spends a lot on education, and has the largest public parks system in the U.S. And New York--well, it's a noisy, hustling, rude, get-out-of-my-way-or-else place that nonetheless seems to seduce people.

To compile this year's list, researchers at Arthur Andersen weighed statistical data from dozens of public and private sources, looking particularly closely at four criteria--caliber of the local work force, quality of life, overall business environment, and cost of doing business. The resulting list gives a good overall snapshot of just where business is thriving now. The wild card, however, was a survey sent to 1,700 senior corporate decision-makers nationwide, which asked (I'm paraphrasing a bit): Who do you love? Now, here is an intriguing peek into the vagaries of the executive mind. New York, for instance, fared only middling in work-force quality, did pretty poorly in the quality-of-life contest (diehard New Yorkers disagree), and was soundly thrashed by San Francisco and Boston in overall business environment. As for the cost of doing business, New York is so far off the charts, it's pitiful. Even San Jose, the acknowledged capital of Silicon Valley, is less pricey, although it's gaining fast. In Manhattan, an apartment the size of a closet (if you can get it) rents for $2,000 a month. A dinner check often looks, to people from saner parts of the country, like a mortgage payment.

Doesn't matter. In the executive survey, New York is No. 1. (The nearest runner-up, Atlanta, earned a score of 84 to the Big Apple's 100.) True, the city is cleaner and safer than it used to be, and business has enjoyed some terrific--and, naturally, controversial--tax incentives. But New York's peculiar mystique seems unrelated to anything so mundane as that, its appeal as vague and hauntingly glamorous as the echo of an old Sinatra tune on a chill November evening.

Or, as they say in Brooklyn: Go figure, people.

In a culture increasingly reliant on sound bites and film clips, every city on our list calls up an image. Dallas? Oil (pronounced "awl"). San Jose? Techies. Austin? Techies in cowboy boots. Right? Well, think again. Of the several attributes these cities share, the main one is economic diversity. "We learned our lesson well in the '80s, when we were overly dependent on oil, gas, and real estate," says Albert Black, a Dallas entrepreneur whose business-supplies and -services company, On-Target Supplies & Logistics, has gone from $60,000 in annual revenues 17 years ago to more than $40 million now. When oil, gas, and real estate faltered, "we learned we had to create a local economy that wasn't reliant on any small core of industries."

Since 1990, Dallas has enticed big-name companies in just about every imaginable business--from video stores to banks to utilities to consumer goods to high tech--to come on down, stay put, or expand (and sometimes two out of three). And Dallas is far from alone in this: Nobody wants to be a one-company--or one-industry--town anymore. The San Jose area is the home of gargantuan Cisco Systems as well as about 6,200 smaller high-tech companies. Still, the figures show that the local work force--among the best educated and most productive in the U.S.--is only about 25% techies. The rest? They're plying other trades--including printing and publishing (national newspaper chain Knight-Ridder has its headquarters there), chemical-making, and rubber and plastic goods manufacturing. Or they're working in real estate, stockbrokering, health care, or any number of other professions that naturally spring up around new money.

Even the cities that haven't diversified enough yet--or fear they haven't--are trying. Austin, a city built on software, is earnestly, and so far successfully, branching out into hardware (Dell is nearby), semiconductors, multimedia, biotech, and show biz (not a big stretch, considering the wealth of musical talent, like Lyle Lovett, that has congregated here for years). It is also the capital of Texas, so there are a few government jobs around that seem likely to last--not to mention a multimedia event called George W., who just might end up taking some local employees to Washington.

In the diversification race, it seems that old standbys like San Francisco and New York have still got an edge. The City by the Bay hosts more than 40 big biotech companies (including Genentech), 30 of the world's biggest banks, 70-odd airlines (25 of which are overseas carriers), and a booming cadre of architects, engineers, lawyers, and recruiters who serve all of the above, plus an alarmingly large number of entrepreneurs of all stripes--and yet San Francisco's biggest industry is tourism. And New York? Well, besides being home for more headquarters of FORTUNE 1000 companies than anywhere else, New York has got a high-tech industry that refuses to be left behind by the Left Coast. Between 1992 and 1997, the number of software makers in "Silicon Alley" grew 84%. "In the '90s, big banks and brokerage firms became, in essence, huge computers. They need software," explains Gerry Cohen, a lifelong New Yorker who is founder and CEO of Information Builders Inc., a 24-year-old Silicon Alley mainstay with revenues of $307 million a year and 1,950 employees worldwide. Cohen can see the Statue of Liberty ("an inspiring view") from his office window. He takes the subway to work. "I like vertical buildings. Also, I hate to sit in traffic jams," he says. "My company brings a lot of people here from California, but sometimes they just don't transplant well. It's a whole different culture."

Might those Californians be happier in Atlanta? For the past few years, Atlanta has sure been hoping so. Mind you, this is already a fairly diverse town economically, home to BellSouth, Home Depot, UPS, Delta Airlines, and Georgia-Pacific, among many other big names. But luminaries from Georgia Tech and local industry have gotten together and launched a nationwide recruiting effort to bring high-tech firms to Atlanta, and so far it seems to be working. Recent figures from the Bureau of Labor Statistics show that Georgia, led by Atlanta, ranks first in the rate of growth of cyberjobs. (Some Atlanta tech boosters want to change the town's name to @lanta--at least for promotional purposes.) Hambrecht & Quist, underwriter of Apple Computer, Netscape, and Adobe, has taken notice. The firm opened an Atlanta office last April. Says one Atlanta executive (who asked not to be named for fear of offending anyone): "Maybe we'll never be another Seattle or San Jose. But we are not just Coca-Cola anymore."

If a rising tide lifts all boats, what happens when the tide goes out? Every city on our list has run up on its share of economic shoals and mud flats. So, in these days of clear sailing, each of the ten best is taking the opportunity to improve its infrastructure. The idea, of course, is to attract even more talented people--in ways that will weather the next recession, the one after, and the one after that. Most notably, if you haven't seen the (formerly seedy, or traffic-clogged, or just abandoned) downtown of any city on the list, go take a look. You may not believe your eyes.

In Seattle, where the technology (Microsoft) and aerospace (Boeing) industries have pumped billions into the local economy, the recently spruced-up downtown's crowning glory is the new home for the Mariners, a $498 million, 45,000-seat baseball stadium with a retractable roof--only the second of its kind in the U.S. (The one in Phoenix is designed to keep out the sun, whereas Seattle's roof acts as a great big rain hat.) And watch Denver: On Nov. 2, the city's voters passed referendums that will widen major roadways in and out of town, build a state-of-the-art light rail system for commuters, double the size of the Colorado Convention Center, double the size of the city's art museum, and pour $125 million into renovating the zoo.

Boston has got the Big Dig, a massive construction project that will route traffic underground through downtown, untangle the old snarls, get rid of those awful ancient tunnels on the way to the airport, and free up many acres of land for uses that the public might actually enjoy--parks, for instance. Chicago is determined to entice people back from the suburbs, at whatever cost in temporary aggravation. About 56,000 companies are located in the heart of the city (as opposed to outlying office parks and such), and their one-million-plus employees have been putting up with $2 billion worth of construction, including new shopping malls, theaters, housing, parks, and a $100 million manufacturing and distribution center on the site of an old USX steel mill beside Lake Michigan.

There isn't a city on our list that hasn't seen huge population gains during the '90s, and those extra souls--along with unemployment rates generally below the record-breaking national low of 4.1%--send tax bases soaring. Chicago added 102,000 new jobs this year alone, according to Bureau of Labor Statistics figures. Dallas gained 96,300. Atlanta's population has increased by almost one-third since 1991, to 3.7 million. There are only 0.8% more New Yorkers now than in 1990, but city demographers point out a striking trend: Immigration from other countries has increased so much that, between 1990 and 1996, 52% of newborns in the city had at least one foreign-born parent.

Austin is rapidly becoming a city of newcomers; 88% of its current population of 1.2 million came from elsewhere during the past decade. And where are they all coming from? Ah. Funny you should ask. "Austin has a fast-paced high-tech industry and a wonderful energy, but it's not cutthroat. People work hard, but they know how to relax too," says Alexa Lange, co-founder and president of HireTech, an Austin recruiting firm. "So people are moving here to escape [Silicon] Valley--the congestion, the traffic, the pressure."

There is an old Carolina Low Country saying: Pray for rain, git struck by lightning. Prosperity and growth are great, but too much is too much--and the cities on our list are putting up lightning rods as fast as they can. In Dallas, commuters to suburbs like Richardson are eagerly awaiting the opening of the widened, less maddening version of the North Central Expressway, under construction for a decade now and expected to open this month. An even bigger deal is DART, the local mass transit system, which is adding some 50 miles of rail service to outlying towns, with 14 new stations. "In the beginning, there were fears no one would ride it," says Liz Minyard, a native Dallasite and co-CEO (with her sister Gretchen) of Minyard Food Stores, a regional grocery chain. "But now it's become so popular, people in suburbs that don't have it yet are saying, 'Hurry up and get us on the system!' We need that if we're going to keep growing. The whole country has got to get away from the one-person-in-a-car mentality."

The main obstacle to commonsense commuting, as Jeff Pohle sees it, is that "lots of people really like their cars--even when the trains are three times faster." Pohle is president of Southern Lumber Co., a three-generation family business in San Jose, where a local transit authority study recently noted that 31% of area freeways earned an F rating (the "worst possible" score, with "traffic at speeds less than 35 miles per hour"). That was up from just 11% four years ago.

And let's not forget the cost of living. "You can't hire a receptionist here for less than $45,000 a year," says Pohle. Schools are having trouble finding teachers who can afford to live in a place where the median home price last year was $304,000. Is Pohle, the father of two small kids, worried about that? Not really. He notes that one nearby school district is solving the problem by building subsidized housing for teachers, and he expects that the rest of San Jose's growing pains will eventually ease too.

Ask him why he's so optimistic, and he says, "See, this is what happens when you have lots of smart, innovative business people around. Sure, success gives rise to some problems. But at the same time, these are people who are used to thinking outside the box. So there's no shortage of solutions either." That creative energy is what makes the best cities for business truly great.

FORTUNE created its list of the best cities for business in partnership with the Business Location Practice of Arthur Andersen. In compiling this list, Andersen used three kinds of research: (1) a survey of executives worldwide, (2) a survey of economic development organizations for 160 cities, and (3) independent research done by Andersen. The information was analyzed to select cities that satisfied critical business-location needs and especially relating to recruiting and retaining managerial and professional talent. FORTUNE made the final ranking decisions, incorporating the results of Arthur Andersen's work with information and analysis supplied by writers and researchers. Arthur Andersen's research highlights are available on the Internet at www.arthurandersen.com/BestCities, or you can obtain a copy by faxing your request to Dan Malachuk, Andersen's director of Business Location Services, at 212-445-9454.