By Lachlan Carmichael - CAIRO

Across a vast swathe of land from North Africa to the Gulf, signs abound that the Internet is taking root in Arab cities.

From Casablanca to Dubai, via Cairo, Amman, and Beirut, there are now thousands of Arab businesses with websites, hundreds of ISPs and Internet cafes, as well as a host of dot.coms, and Internet-enabling software firms.

A few firms have attracted millions of dollars in foreign investment in addition to Arab start-up capital.

Yet, unlike in the United States, Europe and Asia, an Arab Internet economy remains in its infancy, with government and businesses needing to do more to nurture it, according to analysts, businessmen and government officials.

Such an economy "will grow rapidly by itself providing the fundamental infrastructure and legislation are in place," Nicholas Smith, Vice President of US-based Gartner consultants, said while visiting Cairo late last month.

Already, "the pace of development is increasing," said the executive with the Connecticut-based firm.

The United Arab Emirates (UAE), Egypt, Lebanon and Jordan are leading the way by starting to lay the legal and banking foundations and investing in telecommunications and education, Smith said.

The laggards were Syria and the oil-rich Gulf states of Saudi Arabia, Bahrain, Kuwait and Qatar, according to the survey Gartner conducted for California-based Cisco Systems, a leader in networking for the Internet.

Internet Service Providers (ISPs) and others in the Gulf who were questioned by Gartner worried that their "government was still more concerned about the dangers than it was about the opportunities," Smith said.

Smith said Arabs were increasingly using the Internet for e-mail, obtaining information, and even shopping for books, music CDs, computers and travel.

The Arabic-English web portal Ajeeb.com said last month that more than 3.5 million of the estimated 240 million people in the Arab world are logging on to the Internet, led by computer-savvy Emiratis in Dubai and Abu Dhabi.

But Arabs were using the Internet much less for banking transactions and there were few examples of firms businesses dealing with each other on-line such as a factory with its suppliers, Gartner said.

Jordan, by its own and independent accounts, is heading in the right direction.

Fawaz Zu'bi, Jordan's minister of post and communications, said during a visit to Cairo last month that his government has adopted "a very aggressive approach to prepare the environment so business can say 'let's go to Jordan."

For starters, a 40-percent stake of state-run Jordan Telecom was sold a year ago to strategic investor France Telecom in a move which helps improve the Internet infrastructure.

Egyptian businessmen complained privatization of the state monopoly Telecom Egypt keeps getting postponed.

Both Jordan and Egypt have invested large sums in computer education.

Since per capita income is low in Jordan and throughout the region, Amman was trying to make access to computers and the Internet affordable, and was studying a plan to provide financing through state-run banks, Zu'bi said.

"What's going to make the real jump is affordability," said Zu'bi while attending a recent conference on information technology in Cairo. "Without this happening, the Internet is not going to take off."

Gartner did not survey the North African countries of Morocco, Algeria, Tunisia and Libya.

However, analysts say the Moroccan government is a leading promoter of the Internet by selling a 35-percent stake in state telephone monopoly Maroc Telecom to global player Vivendi and by allowing competition among ISPs.

Casablanca, Morocco's business hub, is where most of the action is, though Internet firms tend to prefer to provide content or develop software in French rather than Arabic, Upline Securities Managing Director Aisha Tadimi said.

Meanwhile, millions of dollars in investment -- a trickle by western standards -- is coming into the region.

The Internet and e-mail provider Africa Online bought the Egyptian ISP MenaNet Communications SAE for 8.7 million dollars, it was announced here in February.

In September last year, Al-Bawaba, a Jordan-based new Arabic Internet portal, was launched with a promise to be the Middle East's "largest souk" for business, news, e-mail, chats and shopping.

Start-up capital was 8.15 million dollars, including three million from New York-based Tower Hill Capital and 3.15 million dollars from Frankfurt-based TFG Venture Capital, according to Al-Bawaba founder Hani Jabsheh.

Jabsheh admitted that raising the capital was easier last year because it was before the dot.com meltdown on the US and world markets and warned that only those Arab entrepreneurs with a "sound business model will survive" now.

Mustafa Abdel Wadood, managing director of Sigma Capital which advised MenaNet in its deal with Africa Online, said his is among a handful of venture capital firms in Egypt targeting a small but budding Internet business.