Everyone in Saudi Arabia is talking about KAUST. And it's Saudi Arabia's hope that soon the rest of the world will also be raving about KAUST. That's the acronym for King Abdullah University for Science and Technology, a new, multi-billion dollar graduate-level university on a sprawling campus outside Jeddah. I was invited to the gala ceremony--along with 3,500 other guests including heads of state, business leaders and Nobel laureates--to celebrate this week's opening of the university.

The event was done in grand style fit for a king and flashier than the product launches for a new Apple gadget. The ceremony was held in a tent bigger than an airplane hangar; and the Saudis dazzled the crowd with fireworks, an extravagant water fountain show and a dinner feast straight out of "A Thousand and One Arabian Nights."

So why all this hoopla for a university?

KAUST is part of a major push by Saudi Arabia to use its oil wealth to diversify the economy beyond petroleum and to prepare the country for a globalized competitive environment. Modernizing the education system is central to the plan and a big priority of King Abdullah, who just turned 85 and is racing against the clock to leave a lasting legacy.

There are many reasons King Abdullah is pushing hard to create what he calls a "knowledge-based society." Saudi Arabia has all the money in the world to buy planes and to build hospitals, but it doesn't have the people to operate them. With 70 percent of the Saudi population under the age of 30, the King knows he has to better prepare his people for the job market. He's also been under international pressure to overhaul the Saudi educational system that is dominated by religious studies and has been criticized for breeding Islamic radicals. Recently, King Abdullah showed the world how serious he is about reform when he reshuffled his cabinet, ousting some hard line clerics and appointing a woman--a first--as the new deputy minister of education. And as the King addressed his international guests at the KAUST ceremony this week, he asserted that he wants Saudi Arabia to offer the world innovations in science and technology, not terrorism.

KAUST is located in Thuwal, a fishing village on the Red Sea. It took me an hour to get there by car from Jeddah. On the long drive, I was struck by the desolate landscape. There's not much to see--only stretches of barren desert. But once the car pulled up to KAUST's main entrance, it was like reaching an oasis in the desert. Sleek glass-and-stone buildings on a 9,000-acre campus lined with palm trees and surrounded by a marine sanctuary. As I toured the campus, I saw multi-media classrooms outfitted with large flat screen TVs. I was impressed with the science and math labs equipped with the latest technology including an IBM supercomputer dubbed Shaheen, one of the fastest in the world, and a six-dimensional virtual reality facility called Cornea, that can be used for space and geological research. The university's President, Choon Fong Shih, told me he calls KAUST, "Stanford on the Red Sea."

Shih is just one of many big name personalities that Saudi Arabia has wooed to the region. He was president of the National University of Singapore and a long-time mechanical engineering professor at Brown University. The KAUST board of trustees includes Vanguard's CEO John Brennan, Princeton's President Shirley Tilghman and former Cornell President Frank Rhodes. Many members of the faculty are prominent academics who have been hired from top universities in the U.S and Europe. Several large, multinational corporations including Boeing, Dow Chemical, General Electric and Schlumberger have signed research partnerships with the university. KAUST also begins with a rich endowment from King Abdullah: $10 billion, not far behind Harvard and Yale. Already Goldman Sachs, Blackrock and other Wall Street heavyweights are lobbying to manage and invest that money.

KAUST is run like a Western-style university. First of all, it's co-ed--the only school in the kingdom that has students of both sexes. I saw women freely mingling with their male classmates, a sharp contrast to the rigid gender rules in this strictly Islamic country. Women are not required to wear veils or abayas--the long, black tunics--that are the mandatory dress code for Saudi women. All of the courses are taught in English and are geared for students in the sciences working for a masters or doctoral degree. Tuition is free for everyone, compliments of the Saudi kingdom. The first batch of students--314--arrived in early September. One hundred of them are Saudis, the rest come from 60 other countries including many students from the U.S. Another 400 have already been accepted for next year.

So what's my takeaway on all this? It's hard not to be impressed by the bold mission of KAUST and Saudi Arabia's plans to modernize the country beyond oil. What the Saudis have done so far is amazing and their noble goals should be applauded. As I talked with the CEOs of American and European companies collaborating with, KAUST, or considering it, the feedback was extremely positive about the potential opportunities. But I worry--and they do too--that the very academic and social freedoms KAUST hopes to cultivate could clash with the country's religious and cultural traditions. Those traditions are imbedded in the Saudi mindset and will be challenging to change. There could be unintended consequences from this modernization drive. There is a risk of antagonizing the Islamic clerical establishment. We've seen in other Middle Eastern countries how Western ideas have collided with Eastern beliefs with disastrous results.

Almost every KAUST official I talked to boasted about how fast they built the university. It took only 1,000 days, from the master plan sketch to site construction--record time for a project of this scale. But that kind of efficiency and speed will be difficult to execute as the Saudis try to transform the country's educational system and are confronted with social and cultural issues that accompany rapid change. It may take more than a King's willpower and wealth to pull that off.