(FORTUNE Magazine) – Step right up for one of the great real estate investment opportunities of the century: the coming rebirth of the Crescent City. Think I've lost it? Think again. There's no longer any question that the U.S. will rebuild New Orleans. The French Quarter lives, and Speaker of the House Denny Hastert--who floated the moronic notion that we should just bulldoze the place--has been shouted down. The only problem is that we have no idea how to do it. Resurrecting New Orleans will require us to tap into most of what we know about urban experience: principles of design and infrastructure, of course, but also race, politics, money, and social justice, not to mention food and music. The ultimate plan, its execution and outcome, will be a very public display of our ability to think big and act bigger. We need to succeed.

The French Quarter and the city's business district are going to be fine--the power of tourism and commerce will see to that. But the severely damaged low- income residential neighborhoods, where visitors seldom journey, are another matter. Market forces alone won't rebuild uninsured shotgun shacks in flooded wards. And these neighborhoods lie in a New Orleans that was failing even before Katrina. According to the Census Bureau, the population had fallen from nearly 500,000 in 1990 to 462,000 last year. The median family income of $36,465 was more than 32% below the national average. Nearly a quarter of its population lived in poverty, as opposed to 13% nationwide. It was a city of crooked politics, police corruption, and murder. Do we want to rebuild that New Orleans? And if we don't, how do we save the extraordinary cultural vitality that flourished within it and brought the world étouffée and muffulettas, Louis Armstrong and Professor Longhair, the Mardi Gras indians and the Nevilles? How, in short, do we lose the bad stuff and keep the good?

Before we can properly tackle those questions, we need to commit to something much more basic: securing the city from the sea. Insurance companies aren't going to write policies for--and big companies aren't going to make long-term investments in--a metropolis that has demonstrated its utter vulnerability to the whims of Mother Nature. So let's build New Orleans' defenses the right way. That means green-lighting projects like Coast 2050, a $14 billion plan to repair Louisiana's disappearing coastal marshes, which once served as a buffer during hurricanes. It means constructing levee systems designed to withstand the most severe storms and examining civil engineering strategies to raise the lowest parts of the city closer to sea level. "This landscape is a dynamic entity, and it needs to be choreographed rather than conquered," says Felipe Correa of the Harvard Graduate School of Design, who last semester did a project on restructuring the city's waterfront. "Only through a new attitude toward infrastructure can you create a safe ground and build confidence for investment."

Once we've committed to safeguarding the new New Orleans, well, that's when things will get really interesting. "First we have to figure out what we've got," says Kristina Ford, former New Orleans director of city planning, who's now a professor of land-use planning at Bowdoin College. She recommends that officials take a quick inventory of which buildings that were underwater can be salvaged. "Second, the governor or the President or Congress has to create a centralized redevelopment authority. When everything is dry and electricity is back up, there is going to be a huge push to get the rebuilding started. And if it's done without any kind of strategy, then the next catastrophe will be that we lost this opportunity to make things better there and to make sure that poor people are not put back into harm's way. Third, we need to convene some of the best minds in America on how to draw the citizens of New Orleans back in and rebuild the city with that same jambalaya of economic and cultural classes."

Already, local business leaders are gathering in Dallas and Houston and Baton Rouge, debating how to get the job done. And there's no shortage of strong opinions. Take, for instance, Pres Kabacoff, CEO of HRI Properties, a New Orleans development company that specializes in rebuilding historic neighborhoods. He insists that preexisting business and infrastructure must be the backbone. "The key is to recognize that our surviving industries are oil and gas, petrochemicals, the port, tourism," says Kabacoff. "We must keep people employed, so as not to lose a tremendous slice of the population. And the federal government has to make sure that as they put money into the city, local businesses participate."

Whatever the guiding principle turns out to be, the country's top minds agree that a strong, coherent reconstruction plan at the outset is essential to the city's rebirth. But just how creative are we willing to get in our planning? Bill McDonough, one of the nation's most prominent architects and a world-recognized expert in environmentally sustainable design, has been doing a lot of thinking about the city's reconstruction, which he calls "Jeffersonian" in scope. The cleanup and environmental issues alone, he points out, will be immense. McDonough has some surprising solutions in mind. "All the areas that are dead should be allowed to die," he says. "We don't want to bring children back to where it's dangerous. We can use a process called phytoremediation, which uses plants like mustard or indigenous species to decontaminate instead of burying soil and burning."

Indeed, McDonough sees an opportunity for New Orleans to serve as kind of testing ground for the potential of environmentally sound planning. "We need to turn hard to soft and gray to green," he says. "That means as often as possible we need to mandate that paving be porous and make parking lots like giant sponges that slow runoff. And what we don't need paved--and you'd be amazed at how much doesn't need to be paved--we need to turn back to earth." As for planning and housing, McDonough says the city should turn low-lying areas into lakes and create habitats for ducks that would be a "celebration of species" as well as great hunting grounds. At the same time, he says, "We could build and inhabit mounds--create high ground."

When it comes to housing stock, experts agree that it must come quickly. "We can't wait six months," says Kabacoff, "We've got to get manufactured housing and long-term housing immediately." But returning evacuees from poor neighborhoods must not all be funneled back into the same areas they fled. The city will probably need some public housing projects. However, it also desperately needs to create mixed-income communities, not rebuild its slums. Says Kabacoff: "Mixed communities work, and we've got to do it."

Kabacoff believes that New Orleans could become a more tightly knit community by getting denser. He suggests constructing residential mid-rises 14 or 15 stories tall. "New Orleans is one of the most geographically dispersed cities in the country," says Kabacoff. "You have a lot of area you don't need to build on to maintain population. It could stand twice the density it has now. You would create a denser, tighter environment around historical centers."

Rebuilding right will be a mind-bending task. But we can't shrink from the challenge of making the city as culturally diverse as it was before, says former city planner Ford. "We must not lose sight of the fact that much of what's compelling about New Orleans goes beyond what is simply efficient," she says. "Nobody wants a replica. We need to rebuild what exists. It's a very diverse, complex culture. The city is almost 300 years old. We need to show off America's ingenuity and America's willingness to help people."

To do that we must dream grand dreams, not sprinkle the town with Applebee's restaurants and strip malls. "Before Katrina," says Kabacoff. "I had put together with others a plan for embellishing the historical center of the city. The notion of Operation Rebirth was that we could be more like a Paris--an Afro-Caribbean Paris, with public and private partnerships, music, Afro-Caribbean cultural entertainment districts, and riverfront amphitheaters that you would circumnavigate with streetcars." Just a dream? Sounds more like a plan to me.

REPORTER ASSOCIATE Corey Hajim FEEDBACK aserwer@fortunemail.com