Oman’s capital, Muscat, has come a long way since 1970, when Sultan Qaboos deposed his dear old dad, sent him into exile in London’s Dorchester Hotel, and wrenched his homeland out of the dark ages. Back then, the country had just six miles of tarmac road. All that’s changed now, of course, but where the United Arab Emirates—particularly Dubai—spent its oil money on bling, Muscat modernized while retaining its Arabian Nights charm. It’s a gracious city of distinct settlements and a couple of forts, strung out between the hills and the beach. Ruwi is the busy commercial center, while the waterfront districts of Muttrah and Muscat are more atmospheric. Don’t miss the Grand Mosque, a present from Qaboos to his countrymen, and arguably the most beautiful building of the 1990s, with its serene courtyards and gardens, acres of gleaming white marble, enormous dome and world-record fripperies such as the biggest chandelier (made in Italy) and largest hand-knotted carpet (from Iran). Throw on an ankle-length robe—a men’s white dishdasha, or women’s black abayah (or a pair of trousers and a long-sleeved shirt, yawn)—if you’re planning to visit. Bikinis are strictly for the beach.

Argue with an Armed Man

In a friendly way. Haggling in the souqs (markets) is mandatory, whether you’re buying a Beckham T-shirt or an armful of silver bangles. Many traders wear traditional jewel-colored silk sashes, stuck through with khanjars, curved Omani swords. These flash through the air with the same alarming speed as a new sack of spices is split open, filling the air with yet another exotic aroma. Muttrah souq in Muscat is the real deal—men gossiping in coffee shops, black-veiled women and apple-scented tobacco. Elsewhere, the Omani Heritage Gallery (www.omaniheritage.com), located in the Jawaharat al Shatti mall, is a non-profit shop that trades with Omani artisans. Best buy: Bedouin bling—ethnic silver, amber and turquoise jewelry, cheap even at twice the price.

Bash a Dune

Two best things about the Omani desert: dune bashing and forts. Sometimes it seems there’s a fort on every desert horizon, thanks to 5,000 years of tribal conflict. Sally forth from Muscat through the Hajar Mountains to the 17th-century fort at Nizwa, one of the country’s largest, and the renovated fort at Jabrin. If you prefer your history untouched, opt for the ghost town of Tanuf or the amazing ruined city of Manah. Or just ramble through the medieval villages. Enough sightseeing? Try a rollercoaster dune-bashing ride in a 4x4 through the 200-meter high orange dunes at Wahiba Sands. Then take in the stunning wadis—dusty desert gorges with unexpected pools of clear blue water surrounded by palm trees. Did somebody say oasis? Muscat Diving & Adventure Center (www.holiday-in-oman.com) is one of several companies that run one- to 14-day desert safaris, including self-drive options.

Relax in Luxury

All that dry desert air sure makes you thirsty, but outside the hotels you’ll struggle to find an alcoholic drink (and you’re unlikely to find one even in the hotels in smaller towns). Oman is no party Mecca; in fact, it’s officially a dry state. This means there’s not much of a scene, but what there is tends to be focused on The Chedi (968-2452-4400, www.ghmhotels.com), a glam "Omani-Zen" boutique hotel in Muscat. A night there is around OMR140-420 (B12,040-36,120). And now there’s the new Shangri-La Barr Al Jissah Resort (www.shangri-la.com), which has 19 bars and restaurants, notably the spectacular Shahrazad Moroccan restaurant in Al Husn (see below).

Located on 50 manicured hectares between rugged red mountains and a private beach, 20 minutes from Muscat, Shangri-La Barr Al Jissah (968-2477-6666, www.shangri-la.com) comprises three hotels: the uber-luxurious Al Husn (The Castle), the more business-like Al Bandar (The Town), and the larger, family-oriented Al Waha (The Oasis). There’s a vast pool complex complete with its own "Lazy River," an amphitheater built for a thousand people, an Omani Heritage Village and fabulous sports facilities, including a dedicated marina and dive center. It even has its own full-time "turtle ranger." Go whale and dolphin watching—actually, we insist you do this; it’s great—hire a kayak, or bliss out in the Chi Spa, which is so big it’s been dubbed a spa village.

The jewel in its crown is Al Husn, which opened in September. A fusion of traditional Omani fort and Moorish architecture, it has echoes of Spain’s Alhambra—a square-ish, pinkish palace on a headland dominating the bay. If you can judge a hotel by its bathrooms (and let’s face it, most of us do), then Al Husn comes up trumps: each 56-square-meter (and up) room has sliding glass panels that let you soak up the view as you soak in the tub. A night in this luxury resort is around OMR77 (B6,622).

Get Wrecked

The Damaniyat Islands put Oman on the scuba map. Situated an hour north of Muscat, this string of islands boasts underwater coral gardens so spectacular that the site has been granted UNESCO protection. Expect to swim with turtles, myriad fish and the occasional leopard shark. Closer to Muscat is the wreck of the Al Munassir, a 3,000-tonne ship deliberately sunk in 30 meters of water by the Omani Navy and fast becoming a top dive spot. Muscat Diving & Adventure Center (www.holiday-in-oman.com) runs a wide variety of diving trips and courses for all levels.

Swim the Fjords

It’s not just Norway that has fjords. Bright red mountains, with their tops sometimes obscured by heat haze, drop vertically into the sparkling blue sea to form the Musandam Peninsula’s amazing desert fjords. Cut off from the rest of Oman by the UAE, it’s a smuggler’s paradise: boatloads of Iranian traders travel the 68km across the Strait of Hormuz carrying legal sheep and goats, then throttle up for the high-speed journey back, laden with contraband ciggies. You, however, can cruise the spectacular desert fjords at a more leisurely pace, lolling on Persian carpets aboard a wooden dhow. Humpbacked dolphins frolic alongside as you pass tiny villages dwarfed by spectacular peaks before stopping to swim and snorkel among kaleidoscopic fish. To get there, you’ll need a multi-entry Oman visa to pass through the UAE, or fly from Muscat to Khasab, the largest town on the peninsula and a dhow-building hub with a thriving dive scene.

Hit the Trail

Jebel Shams, the "mountain of the sun," is Oman’s highest point at 3,075m. Near the summit is the 300-meter deep gorge Wadi Ghul, with a scary trail along the rim for those with no fear of heights. Just reaching the trailhead at the village of Al Khateem (check out the hanging gardens) involves a white-knuckle jeep ascent—all hairpin bends and suicidal donkeys. The trail itself is little more than a goat track in places, with 250m drops on one side and a sheer cliff-face rising above you. But the views are otherworldly. Stay for sunset.

Smell the Frankincense

The sap of the disappointingly puny frankincense tree used to be worth as much as gold – yes, money really did grow on trees. But frankincense has dropped in the commodities market since the time of Jesus: today, you can buy a half-kilo bag for about B127. Every souq, alleyway and mosque in Oman reeks of the stuff; a natural air freshener said to be good for asthma. It grows in profusion near Salalah, the center of the world’s frankincense trade, along with 60 types of dates.

Watch the Weather

Salalah, in the southeast, is sideswiped by the same monsoons that affect India, creating cloud and rain in July. Like a February frost on Tai Mo Shan, the freakish weather is one of the biggest tourist attractions in the region, with people driving for days from other Gulf States to camp out in the downpour. Bring an umbrella or go in winter (Oct-Apr), when you’re guaranteed sunny days and average temperatures of 25-30C. While you’re there, check out Nayi Ayoub (Job’s tomb), what’s left of the Queen of Sheba’s palace at Sumharam and miles of pristine beach.