Along the desert coast of the Red Sea, the most ambitious real estate project in the Middle East is taking shape. The $26.6 billion development includes luxury waterfront villas, golf courses, a deep-water port, a “financial island” to house offices of the world’s largest financial institutions, new schools, and the requisite jaw-dropping skyscrapers. Emaar Properties, the slick, Dubai-based developer, is pitching the project—one that is expected to attract some 2 million residents within a few years—as a socially relaxed alternative to the strict conventions that have long defined Saudi Arabia. Brochures geared to investors show women in shorts, golfing alongside men, something unheard of in the kingdom today. But then, King Abdullah Economic City was never intended to look like the rest of the country. It’s Saudi Arabia’s answer to Dubai—the wild west of the Middle East.

As its name suggests, the project enjoys the support of Saudi Arabia’s new monarch, King Abdullah bin Abdel Aziz, the 13th son of Ibn Saud, the kingdom’s founder. King Abdullah Economic City is the most obvious example of the new king’s effort to thrust Saudi Arabia into the 21st century. It is also a critical part of the government’s attempt to draw private investment to meet the demands of its rapidly growing population. For reformers, the new city not only generates much-needed jobs and foreign investment, but it also redirects resources away from the highly conservative power center of Riyadh. Five more cities are on the drawing board. But unlike other, relatively liberal Arab countries with booming metropolises and unlimited potential for growth, there is but a small window of opportunity for such rapid development in Saudi Arabia.

At 82, the king is already the same age as his predecessor, his half brother,...