(FORTUNE Magazine) – It's 110 degrees in the shade, but you'd never know it inside the air-conditioned Rolls-Royce Silver Seraph whisking you from Dubai's new $550 million airport to the Burj Al Arab Hotel. Shaped like the sail of a J-Class racing yacht, the world's tallest hotel--taller than the Eiffel Tower--stands on its own man-made island in the Persian Gulf. It's the most audacious and, if the billion-dollar investment rumors are to be believed, the most expensive of Arabia's new luxury playgrounds.

Despite the renewal of Palestinian-Israeli violence at the end of September, Middle East tourism grew by 10.2% last year, and the entire region is in an astounding upmarket hotel boom. Rather than leaving oil fortunes to stagnate in Swiss bank accounts, Mideast tycoons are building tourism infrastructure. The most visible tycoon is Saudi Arabia's Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, the billionaire who owns a 25% stake in the Four Seasons hotel chain, which recently opened its first Middle East property, in Cairo.

"The Middle East's unique variety of history, exotic settings, beaches, and almost year-round great weather has enormous potential," explains Antoine Corinthios, Four Seasons' president for Europe, the Middle East, and Africa, of the company's decision to launch at least six Middle East properties. "Obviously there's a lot of concern about politics, but we're interested in the long run."

With Arab-Israeli tension running high, Saddam Hussein still in power in Iraq, and notoriously skittish Western tourists who consider the Middle East synonymous with danger, hotel investment remains a dicey proposition. But according to the latest Merrill Lynch/Gemini Consulting world wealth report, Middle East tycoons will hold $1.9 trillion in private assets by 2004. Much of the bounty belongs to well-traveled and well-educated business people who want to stay in--or own--hotels where they can host people, Arabian-style, on their turf.

Nothing sets a standard for tower envy like the Burj Al Arab, the personal Xanadu of Sheikh Mohammed bin Rashid al-Maktoum, Dubai's Crown Prince and the United Arab Emirates' Defense Minister. He personally approved the revolving beds in the 2,600-square-foot royal suites, the helicopter pad cantilevered, Jetsons-style, 820 feet above the sea, and the virtual "submarine" that transports guests from the lobby to a basement seafood restaurant. Designed for the guest with an entourage, the 202 deluxe suites are big enough for impromptu political consultations or, given the mirrored bedroom ceilings, an orgy.

Just in case the Rolls airport transfers, the 24-hour butler service, and the gold and titanium fixtures fail to impress the kids, Sheikh Mohammed has commissioned Wild Wadi, a water park adjacent to the hotel. It uses 396,000 gallons of expensively desalinated seawater. There are nine "master blasters," or water roller coasters, and the Point Break Flow Rider creates a surfer's dream--a perpetual eight-foot wave. American-certified lifeguards don't ask women from conservative Islamic countries to shed their veils.

Even in a 1,510-square-mile patch of sand whose bath-warm waters are infested with poisonous sea snakes, Dubai resorts make good business sense. Tax incentives, low import duties, relentless horseracing, golf and tennis championships, and a friendly tolerance for beer-quaffing, bikini-clad Westerners have combined to make Dubai the business and leisure capital of the Persian Gulf. Airport traffic is growing by 18% a year, compared with 5% worldwide. Ritz-Carlton and Sun International have rushed in, anticipating a wave of high-end visitors following the inauguration of a brand-new cruise-ship terminal and, by 2005, another $650 million airport concourse.

Dubai is the hedonist yin to Saudi Arabia's conservative yang, but the Saudis, who ban alcohol, female motorists, and dating in public, are also promoting local fun. Hit by the decline in oil prices to less than $10 a barrel in 1999, and realizing that their own citizens spend an annual $16 billion on foreign vacations, the ruling family has begun creating a multibillion-dollar tourism industry. (And now that oil has rebounded, they have even more money to do it.)

The intended market includes outsiders: In 1999 the kingdom began permitting many of the five million foreign Moslems on religious pilgrimages to Mecca and Medina to travel freely throughout the country. In another first, Saudi Arabia opened its doors to small groups of American package tourists, including single women (remarkable in a country so fearful of Western cultural contamination).

"Saudi Arabia is loaded," enthuses Peter Voll, whose Peter Voll Associates arranges visits for MIT and Stanford alumni as well as for the Smithsonian Institution. Attractions include deserted Nabataean ruins, the remains of the Hejaz railway bombed by T.E. Lawrence, and pristine Red Sea reefs.

Egypt, with its Pharaonic treasures, still captures 25% of the Mideast travel market--be it Arab, European, or American. The country beefed up security following the 1997 massacre of 58 tourists near Luxor, and arrivals have surpassed pre-massacre records, topping five million and showing 14.7% growth in 2000.

Looking to diversify beyond King Tut, Egypt is hoping that travelers will come for the pyramids and stay for the sun and the golf. Cairo now has Dreamland, a 2,000-acre desert development featuring villas, luxury condos, a Hilton hotel, and a par 72 course with fairway views of the pyramids. On the other side of the Nile, Mirage City has a JW Marriott and 18 holes of golf.

The most dramatic new development is along the Red Sea coast, with luxury-cruise-ship ports and new resorts zoned as far south as the Sudanese border. Even a Bedouin-run rock-climbing school in the arid mountains has been discussed. Desert 4x4 safaris are in vogue, a new luxury eco-resort has opened at Siwa Oasis, and the development of Farafra Oasis will create a gateway to the chalk formations of the White Desert.

The trend doesn't stop there. For decades, the jet set water-skied in Beirut in the morning and went snow skiing in the afternoon. But Lebanon's 1975-90 civil war, along with the Israeli-Palestinian conflict, turned swank resorts into ghost towns. Even though the country remains a potential proxy for neighbors' conflicts, Lebanon recorded an 11.6% growth in arrivals last year. The notorious Green Line between former Moslem and Christian militiamen has become a trendy nightclub strip. Next up for a makeover is the Persian Gulf nation of Qatar--Ritz-Carlton is building a most un-Ritz-Carlton resort, complete with its own water park, scheduled to open in the fall; Four Seasons will follow.

"For the past 30 years the Middle East was not a very welcoming place," says Jim Brown, president of Rosewood Hotels & Resorts, which is seeking short-term financing to restore Beirut's legendary St. Georges Hotel and also building a Saudi-financed spa in the Lebanese port of Byblos. "We're still waiting to see how regional peace unfolds. But Beirut was the Paris of the Middle East, and it's very likely they could get that back."

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