Over the past decade, some countries of the Middle East and North Africa region have spurred economic growth and improved their global competitiveness by taking the first steps in the direction of the knowledge economy. The World Bank Group focuses on Arab societies that deepen 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, and expanding information and communication technologies. The success of a knowledge-economy strategy depends on coordinated progress on all four fronts, with bold approaches tailored to each country's challenges and opportunities. This report includes chapters organized into three main parts. Part 1 presents the rationale and approach for the transition to the knowledge- and innovation-driven economy. Part 2 describes the policies to be implemented in key areas of the knowledge economy: governance, education, innovation, and information and communication technology. Part 3 discusses economic diversification initiatives that can help countries make the most of their knowledge-economy investments. The three annexes to this report review the literature on the relationship between the knowledge economy and job creation in the Middle East and North Africa region, provide insights on a series of country experiences from across the world in developing knowledge-based development strategies, and survey knowledge-economy issues in several Arab countries and highlight policy initiatives that are adapted to their specific country circumstances.