Over the past decade, some countries ofthe Middle East and North Africa region have spurredeconomic growth and improved their global competitiveness bytaking the first steps in the direction of the knowledgeeconomy. The World Bank Group focuses on Arab societies thatdeepen their commitment to reforms in four key policy areas:developing more open and entrepreneurial economies,preparing a better-educated and skilled population,improving capabilities for innovation and research, andexpanding information and communication technologies. Thesuccess of a knowledge-economy strategy depends oncoordinated progress on all four fronts, with boldapproaches tailored to each country's challenges andopportunities. This report includes chapters organized intothree main parts. Part 1 presents the rationale and approachfor the transition to the knowledge- and innovation-driveneconomy. Part 2 describes the policies to be implemented inkey areas of the knowledge economy: governance, education,innovation, and information and communication technology.Part 3 discusses economic diversification initiatives thatcan help countries make the most of their knowledge-economyinvestments. The three annexes to this report review theliterature on the relationship between the knowledge economyand job creation in the Middle East and North Africa region,provide insights on a series of country experiences fromacross the world in developing knowledge-based developmentstrategies, and survey knowledge-economy issues in severalArab countries and highlight policy initiatives that areadapted to their specific country circumstances.