Inside Dubai Inc.

Without much oil under its sands, Dubai is no petro powerhouse. But you can't beat it for being the most colorful sheikdom in the Middle East--or the most ambitious. What other desert land can claim one of the world's largest indoor ski slopes, featuring fresh powder year round? While flying in on the stylish, state-owned Emirates Airlines, you might notice the artificial islands in the shape of a palm tree or the 56-story Burj al-Arab hotel, as tall as the Eiffel Tower, built like a billowing sail. Westerners are welcome, along with their vices. Europeans in bikinis mingle on the beach with Muslim women in abayas; alcohol flows freely at Dubai's nightclubs and resorts. With events like the Dubai World Cup, a horse race with a record $6 million purse, Dubai draws 7 million visitors a year, along with big-name acts from Luciano Pavarotti to Tiger Woods. Its economy has nearly tripled in size, to $34.5 billion, in just a decade. "We have built a success story in a short span of time," says Mohammad al-Gergawi, executive chairman of Dubai Holding, the government-run conglomerate that oversees most of the emirate's big domestic and foreign investments. "In 10 to 15 years, we put Dubai on the map."

It took some members of the U.S. Congress about a day and a half to accomplish as much notoriety for the place, such was their outrage over the latest piece of Dubai's economic development. A state-controlled company, Dubai Ports World, which aims to be a major player in the global-shipping industry, last November agreed to pay $6.8 billion to buy a British firm, Peninsular & Oriental Steam Navigation Co. (P&O), which controls terminal operations under five U.S. port authorities, including those in New York City, Baltimore and Miami. Citing security issues and a lack of information from the Bush Administration, usually free-trade Republicans like Peter King, chairman of the House Homeland Security Committee, have all but vowed to show up at the docks to stop the deal. "A lot of Republicans feel they were hung out to dry," says King. The tussle has even offered the prospect of former President Bill Clinton, a Dubai adviser, squaring off with his spouse, New York Senator Hillary Clinton, who opposes the buyout. Geopolitics makes strange bedfellows. The deal is on hold pending a 45-day national-security review that DP World asked for in the hope of winning support and easing fears about its antiterrorism credentials.

The P&O acquisition is emblematic of a Middle Eastern merchant state on the rise, one that aspires to be much more than an amusement park for jet-setters. Run since 1995 by a press-shy crown prince, Mohammed bin Rashid al-Maktoum, who became emir this year (Sheik Mo, to finance types), Dubai has established a network of holding companies, funds and corporations with more than $15 billion in overseas investments and a domestic goal of turning Dubai into a hub for everything from financial services to biotechnology. Call it Dubai Inc., a conglomerate with Sheik Mo as CEO. "We are not that different [from] small states like Singapore," says Mohammed Alabbar, head of Dubai's Department of Economic Development and chairman of the real estate developer Emaar. "They realized their economy is too small, so they said, 'Let's go to a broader market.' That's what's happening."