Its voluptuous exoticism and easy accessibility have always drawn a certain traveler to this Arab oasis. Now, thanks to an influx of new money and smart new places to stay, the rest of the world is checking in as well.

Frederick Vreeland, the former U.S. ambassador to Morocco and son of Diana, the legendaryVogue editor, has just flown in from Rome to host a lunch party at his Marrakech home, Orchard of the Shooting Star.

Like Vreeland himself, who is tall, slim, and devastatingly good-looking, with intense dark eyes and his mother's high cheekbones, the house oozes Bohemian chic. The villa is located in the Palmeraie, the smart enclave of Marrakech, home to the crème of the city's society, including the transient population renting private houses (the insider alternative to Marrakech's five-star hotels). Vreeland's is the best of them, hidden behind sunburnt walls and a heavy, studded wooden door. There is no traffic, only the sound of a Berber shepherd exhorting his ragtag flock, and birds—thousands of birds. Their song comes from within the orchard of apricot, lemon, and olive trees surrounding the pretty eight-bedroom house, built around a shady courtyard and cluttered with 18th-century European antiques, Moroccan textiles, worn sofas, and Venetian oils. The centerpiece is an arch-shaped pool on a raised terrace overlooking the garden. Swallows dart at the water; bees hover in the flowers; the scent of orange blossoms fills the air.

We eat in the shade—the group includes a fashion photographer, New York banker, and Moroccan palm tree specialist. The talk is of Marrakech's current popularity; the city was empty of even the Gettys (among the early high-style immigrants to Marrakech in the late 1960s) when Vreeland first arrived on an official tour with Jackie Kennedy in '63. At that time the Palmeraie was uninhabited. Now his neighbors include various scions of the Moroccan royal family, Xavier Hermès, and Farid Belkahia (North Africa's most well known contemporary artist) as well as seasonal guests like Linda Evangelista, Nicole Kidman, and Giorgio Armani. "Marrakech has become the destination," says Vreeland. "Everyone is talking about it. It has heritage and exoticism, but it's also a place where as an American you feel most at home in both the Arab and African worlds."

The signs are everywhere. In the Palmeraie, four-wheel-drives cruise past with darkened windows, disappearing behind bolted doors into secret gardens. I stay at Dar Tamsna, a favorite of the visiting fashion pack, where I'm waited on by a staff of nine and have a pool to myself; there are antique-filled salons and a garden that flickers with candles when night falls. I hear about other villas, about land prices going from $75,000 for 2.5 acres in 1995 to double that now, about the people defecting from London, Paris, and Rome. "I used to flatter myself that I knew every foreigner in this town," says Memphis-born Bill Willis, an interiors architect who came here in '66 to work on the homes of Yves Saint Laurent and French philosopher Bernard-Henri Lévy. "Now," says Willis, who is Marrakech's most famous socialite, "I feel I don't know anybody anymore."

Marrakech's old town, or walled medina, has witnessed the greatest influx. The attraction is the riads, traditional houses built around internal courtyards hidden behind the featureless walls that make up the alleys. Many are being converted into maisons d'hôte, or upmarket B&Bs. There is Riad Enija, with its glorious courtyard (colorful mosaic tiling, a fountain at its center) and Riyad El Cadi, nestled at the end of three narrow lanes. Occupying five interconnected courtyards, El Cadi dates back to the 13th century. Its walls are hung with the owner's exquisite collection of early Islamic and Byzantine art and 19th-century Berber textiles, and some of what is displayed has traveled on loan to major exhibitions.

Aside from the B&Bs, there are more obvious signs of a destination much changed. In the medina, women in Prada wander the souk for handwoven silks (I even see a pair of Manolos negotiate their way through the dust), meeting for a light lunch at Ryad Tamsna, a stylish restaurant-boutique converted by Parisian-Senegalese ex-pat Meryanne Loum-Martin. Late in the afternoon the well-heeled retreat to the cream linen banquettes and sip mint tea. My address book bulges with recommendations: Beldi, where Paloma Picasso comes for her handstitched caftans; Valérie Barkowski, a designer of colorful knitwear and hand-finished bed linens; Place Vendôme, where a friend wants her Fendi baguette copied in pale-cream kid.

There are also galleries. I visit Ministero del Gusto, an appointment-only house exhibiting contemporary, African-inspired furniture (more Soho than Maghreb), owned by Alessandra Lippini, a former fashion editor from Italy. It's surprising that a shop this sophisticated (a Moroccan combination of Gaudì and Warhol's Factory) can pull it off in a North African oasis. But the clients come, including David Bowie. We talk—Lippini, her partner Fabrizio Bizzarri, and Frans Ankone, Marrakech habitué and art director of Romeo Gigli—concurring that the appeal of Marrakech is that it is the safest far-off city you can find. You don't even get hustled. Quite the opposite is true: A Moroccan friend helping me find a shop in the souk is the one who gets stopped—by the Tourist Brigade, introduced a few years ago to stamp out the pseudo guides who used to give Marrakech its insalubrious reputation.

Moroccan food is heavy (rich tagines, pastillas dunked in oil) which is surprising, considering most of the country was a French protectorate for so long: The kitchen is usually the first thing to be colonized by the Gallic motherland. But a more delicate cuisine is developing, driven by the demand of discerning visitors, with up-and-coming chefs like Swiss-trained Moha Fedal giving French twists to Dar Moha Almadina's Moroccan staples. At Le Comptoir Darna, young, rich Marrakechis sip Champagne over Oualidia oysters.

These portents of sophistication are not confined to the city proper. In the High Atlas Mountains, an hour's drive from Marrakech, Kasbahs, or old fortified castles, are being turned into luxury hotels. British entrepreneur Richard Branson is renovating Kasbah Tamadot, the former home of California-based antiques dealer Luciano Tempo. It's a breathtaking place, overlooking the Asni Valley, thick with wildflowers, orchards, and swimming pools in hidden courtyards. Farther into the hinterland, Bill Willis is converting Kasbah Agadir N'Gouf. And there's Kasbah Agafay, a new all-suite hotel converted from a 150-year-old hilltop fort 20 minutes outside the city. It is a trend inspired by Amanresorts' Amanjena (opened last February), where the suites are like fiefdoms, the pools like lakes, the hotel the ultimate $800-a-night symbol of the new chic of Marrakech. "Marrakech gives quality of life," says Farid Belkahia. We are sitting in the artist's villa, stuffed with books, paintings, and antiques. "But it's also a place people visit for a reason—spiritual, intellectual, cultural. It makes writers and artists inquisitive. The trouble is that the Occident doesn't necessarily understand it. They don't have this kind of spirituality in their own countries. They come here to try to listen, but this indicates to me that there are some problems in the Occident, that there is something missing." His wife, author Rajae Benchemsi, cuts in: "They just want a hit of Orientalism."

When Western travelers of the 19th century spoke of the Orient, they largely meant the hot, desert Islamic countries of North Africa and the Middle East. Their champion was painter Eugène Delacroix, whose overland journey through Morocco in 1832 became the archetype of the Orientalist experience. It was exotic, with men in djellabahs smoking hookahs, and erotic, with kohl-eyed women hidden behind veils. This cliché is what visitors still expect of Marrakech.

From the air, the medina must look just like an earthworm's nest—a knot of narrow pink lanes circumscribed by eight kilometers of 12th-century ramparts. On the ground, it is no less dense. The epicenter is the Jemaa el Fnaa—the Times Square of Marrakech. Except the people seem more peculiar. A man with a face like a dried date circles an egg around a girl's head. Behind him sits another fortune teller melting lead. Children try to catch soda bottles with a hook and bamboo rod. A family sits with a scribe. There are snake charmers and monkeys on chains. Smoke rises from steaming escargots; lambs' brains are laid out in neat little rows. There are castanets, tambourines, mobile phones; and there is shrieking laughter. There are storytellers, acrobats, and male belly dancers in drag performing wherever a pool of space forms in the evening crowd.

Flanking the Jemaa el Fnaa are the most heavily trafficked souks. There are no cars (it's too tight), only mules and carts. Sun slices through the oleander awnings, through skeins of fuchsia, saffron, and indigo cottons hung out by dyers in the early morning. Artisans work in hovels, chipping at tiles. Each trade—tanners, leatherworkers, metalworkers, slipper-makers—keeps to its own quarter, infused with a defining scent: rotting carcasses, burning metal. Except for the absent veils (this is a progressive Islamic state), it is still a Delacroix canvas. There is nothing familiar—I saw only a single pair ofbabouches (Moroccan slippers) with the fake Vuitton monogram—and there are no advertising billboards.

Globalization runs out of momentum in Marrakech. "Moroccans are proud and have a very ancient culture. They're open-minded to what comes in from outside, as long as it fits in with the local philosophy," says Mohamed Bouskri, a VIP guide for the last 32 years. "There is neither systematic rejection nor acceptance of new ideas. This is because we're African-Mediterranean and Muslim by religion. We are a mosaic of different cultures with a history of filtering influences. The Jewish Mellah and Royal Palace are back to back, despite our king being the highest representative of the Islamic faith. And Club Med is next to the Koutoubia Mosque."

"There seems to be some real cultural elasticity here," says Gary Martin, an American ethnobotanist living in the city. "There's an ability to deal with the introduction of new cultural pressures. They're able to absorb it. This is why Marrakech retains its own identity."

Visitors seeking their hit of Orientalism will be satiated; it is the familiar that eludes you, not the mystique. Yet most of the tourists coming through Marrakech touch only the surface—certain sights, certain places: the ruins of the 16th-century royal palace, Yves Saint Laurent's spectacularly renovated Majorelle Gardens, the metalworkers' souk. This, however, is no longer enough for the increasing number of more discerning visitors who want to go beyond the picturesque. And beyond the obvious, from Berber Picassos (the carpet weavers) to that inevitable story about a grand vizier and his 25 concubines that trips off the tongue of every guide at the Bahia Palace. This triviality has become Martin's bugbear. Identifying the demand for a more sophisticated cultural experience, he recently launched Diversity Excursions, an organization specializing in custom tours accompanied by Moroccan academics, from garden historians to archaeologists. Says Martin, "Its purpose is to plunge deeper into the things that everyone else sees, and things that they don't even get near."

I'm floating above Marrakech in a hot-air balloon. I can see the Atlas Mountains rising dramatically out of the plain, and the Palmeraie, with its patches of green, stretching out from the pink warren of the bustling city. Camels are strung out along the northern walls; the gates into the medina are jammed. I try to peer into the gardens of the private villas. They're too far below, a flock of goats becoming a string of ants on a sere hill. I am reminded of Willis: "To be in the world's largest oasis with those mountains in the distance, it's so theatrical. Throw in the silhouette of the palm trees and it looks like a corny stage set." Better. Better by far. Because Marrakech is a city that understands the value of privacy, epitomized in the medina's architecture with its courtyard gardens and high, windowless walls. I wonder then if it's this subtlety, the sense of understatement, that makes Marrakech the sophisticate of Africa.