It was supposed to be a modernist marvel, an architectural icon of the space age. Nowadays most Parisians don't see the sprawling shopping center known as Les Halles quite that way. They call it "Hole of the Halles," a slur on the grimy, subterranean 1970s monstrosity whose outside spaces smell of urine and where drug dealers lurk in the shadows. "Weed? Coke?"

Contrast this with the sublime geometry of historic Paris. The still-innovative needle of the Eiffel Tower. Gothic churches with jagged angles and ancient stone buttresses. The twin-winged Louvre and the verdant Tuileries garden, not to mention the city's hilltop crown, the Roman-Byzantine basilica of Sacre Coeur. Such is the beauty of old Paris that

one can almost forget that the city was born of strife. The Tuileries, after all, is what remained of the original Tuileries Palace, burned by mobs in 1871. The grand boulevards? Napoleon III carved them out so he could more easily deploy troops around the city. As for the Eiffel Tower, wasn't that once considered an eyesore, to be torn down after the 1889 World Expo?

Paris remains a museum piece--beloved by tourists but not exactly a monument to modernity and the forces of globalization that have transformed genuine world cities like London or New York. And since the 1970s, all efforts to make it so have failed dismally, with the possible exception of the Louvre pyramid by I. M. Pei. If the pit that is Les Halles is exhibit A, then the other great urban projects of the recent era--the intestinal Centre Pompidou, the dismal monolith of the Tour Montparnasse, the alienating high rises on the edge of town--would be B, C and D. But things are about to change, if you believe a new generation of civic optimists. After decades of hesitation, Paris is mounting yet another drive to reinvent itself. The hope: to reclaim the energy of the city's past and cast itself as a modern, cutting-edge global center for intellectuals, business and the arts. "Paris needs more dynamism now," says architect Jean-Patrick Fortin. "The goal is to make Paris as innovative as the Eiffel Tower was in its time--to truly transform it."

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The force behind this dream is Paris's ambitious mayor--one of France's most popular Socialist politicians--Bertrand Delanoe. "I want the city to take full responsibility for its history, to protect it better," Delanoe told NEWSWEEK in his city-hall office. "I also want it to be daring, and to fully belong to the 21st century." As he sees it, Parisians (even if they don't yet realize it) have been drawn into a competition that will affect their lives and civic identity. Their city is pitted against the other European capitals in a battle for the corporate and cultural energy that makes cities vibrate, not just with money and jobs but with innovation and experimentation. Elsewhere, that kind of energy has sparked urban renewal (as in Barcelona), economic growth (as in London, with its financial hub, the City), high-tech enclaves (as in San Francisco) and artistic awakenings (such as Paris itself experienced in the years before World War II). "For Paris to be Paris, the mayor knows that it must be dynamic," says Fortin. "He doesn't want an embalmed city."

So how to free Paris from museumdom? Delanoe aims to start by capitalizing on its native advantages. Forty-seven percent of business leaders surveyed in France say that the country's chief allure is its quality of life. More than 90 percent of them expressed satisfaction with the city's transportation and telecom infrastructure, to pick another key index of modernity. But comparatively high employment costs and business taxes weigh on the other side of the ledger. That's why the actual texture and flavor of the city remain so important. If corporate leaders choose to live in Paris, their companies will follow.

Of course, winning the battle for the best and the brightest isn't just about attracting and keeping cutting-edge companies. Thriving metropolises need youth and energy to do the work. Luckily, Paris has kept what Fortin calls "the rich dynamic strata of society"--families, young singles, professionals that in other countries often move to suburbs. That means offering such things as good nurseries and schools, a solid infrastructure of parks, clean streets and hassle-free transportation. It also means fun. Under Delanoe, Paris has won a reputation for flights of civic whimsy--translating to a distinct, modern stamp.

Consider one of the mayor's earliest agenda-setting innovations, "Paris Plage"--a temporary beach set up along the embankments of the Seine for a few weeks each year. Now in its third year, Paris Plage drew more than 2 million sun-worshipers in its first 10 days this summer. And it has been imitated from Berlin to Brooklyn. There's even a sandy volleyball court in the square in front of Delanoe's office. Paris has also dramatically increased the number of pedestrianized streets, and bike and bus lanes. To promote them, city planners have organized popular bicycle tours, with police escorts. Such initiatives, creative as they are, have an outsize and most unmuseum-like impact. Residents are also now allowed to sit and walk on the grass in city parks.

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The bottom line in civic dynamism is money--and affordable real estate. There lies Delanoe's real challenge. Overcrowded and economically stagnant, Paris in recent years has had precious little of either. The formal confines of the city lie within a ring road known as the peripherique--cordoning a space smaller than Brussels and one fifteenth the size of greater London. So how to generate more real estate? Only by building upward. Yet Paris has not allowed a new high rise for 25 years, placing an eight-floor cap in the middle of town and limiting buildings to 12 stories on the outskirts.

The rules protect the city's quiet pre-World War I charm, but with serious side effects. To find adequate office space, large corporations have had to move to the suburbs. Parisian rents have ballooned. The number of jobs in the city has decreased, pushing working-class families out of town. Paris is believed to be among the most densely populated cities in the world, more than double Tokyo and New York; the greater metropolitan area, meanwhile, is now home to 12 million people, all of whom live less than an hour's train ride from the giant station beneath Les Halles.

The result is a commuter's nightmare. The Chatelet-Les Halles metro station, beneath the sprawling shopping center, wasn't built to handle the 800,000 people who pass through it daily; its walkways are simply too cramped for the hundreds of thousands more who shop, socialize or just linger in the area on sunny summer days. So when Paris discovered that Delanoe had quietly sought proposals for a "renovation" of the hated transport hub, people paid attention. Ideas proposed by such famous French architects as Jean Nouvel run from utilitarian renovations of its gardens and subways to more visionary additions of a hanging garden or the construction of 20 colorful towers for shops, the arts and other uses.

Critics at first accused Delanoe of trying to sneak through a grand project without a mandate. So he peppered Parisians with questionnaires. More than 180,000--nearly one tenth of the city's population--either responded or visited display models of the various proposals. Needless to say, Delanoe got his mandate. "People understand that Les Halles is a meeting point for the whole metropolis. In a way, it is the center of France," says Fortin, who helped launch the project. But instead of inflicting yet another project conceived on high by government officials and urban planners, Delanoe has shown understanding for Parisians' famous reluctance to tinker with their architectural heritage. No one would let him "build an Eiffel Tower today," he says--unless he built a grass-roots consensus beforehand.

The mayor's democratic approach is working magic. Les Halles is only the beginning. City officials are now planning an ambitious citywide tramway to cut traffic on major boulevards. Along the banks of the Seine, workmen are breaking ground on a new university. Also on the chalkboard: new centers for contemporary music, technology and biotechnology, as well as space for artists in residence. There's a plan to construct a year-round swimming pool on the Seine, with a retractable roof. Delanoe has even broken the "tower taboo" and obtained the right to open up the sky, albeit with restraint. Clearly, he's aware of the economics of space. Secondary cities like Toulouse--(home of Airbus) have boomed in recent years, thanks partly to readily available room to grow. "There's a huge need for office space," says Eric Pegard, a cell-phone-industry consultant headquartered in the cold and sprawling corporate complex known as Le Defense, northwest of the city. He longs for the more intimate world of central Paris, with its cafes and street life. If skyscrapers were allowed, he's sure they would sell out almost instantly.

Art, too, figures large in Delanoe's schemata. In reconfiguring Paris's urban landscape, he pledges to push for creativity, flair and style from his architects and designers. The city, by its nature, will always remain a "museum city," he concedes. But can it not also inspire artists and give them the space to create works "that will be exhibited three centuries from now?"

Delanoe may have his eye on more than posterity. Paris has long been a jumping-off point for people with grander ambitions. Until 1977 the city had no mayor because the French state feared the power such a figure might wield. And sure enough, the city's first mayor, Jacques Chirac, is president. Three years into his first term, Delanoe's national approval ratings now rank him alongside France's most popular politicians--positioning him, according to the Paris political buzz, as a future presidential contender, possibly as early as 2007, though more likely in 2012 after a second term in city hall.

Delanoe brushes off such talk. Blatant ambition has always been unseemly in French politics. But if he were to entertain such ambitions, a quirk of the calendar might work in his favor. France is a finalist to host the 2012 Olympics--which just happen to take place within a few months of French presidential elections. As in Barcelona, Athens and other Olympic venues, the Games have always been a powerful vehicle for urban transformation--and it would be no different for Paris. Says one city planner, somewhat cynically: "All of our urban projects are linked to the political calendar."

The mayor may well imagine himself as a presidential candidate, speaking from the renovated heart of Paris at the opening of the 2012 Olympic Games. But Parisian politics are an unruly and unpredictable business, pitting conservatives and conservationists against urban dreamers, social activists versus entrepreneurs and business-friendly politicos. And who knows what economic or terrorist shocks await? Paris's ambitions for itself could go awry in any number of ways. And yet there's also the possibility that they could produce a marvel. Delanoe himself says that he will take the dynamic over the static any day, even if it means that Parisians might be "throwing tomatoes at us in six months." There are worse fates, after all. Besides, if he can do anything about the "Halles hole," Delanoe will be remembered as a hero--even if his grander ambitions falter.

With Marie Valla and Tracy McNicoll