At one end of Rainbow Street, in the heart of Amman’s cafe-filled historic district, sits Think Arabia, one of the hundreds of tech start-ups that have sprung from the Jordanian desert.

Web designers, animators and cartoonists are toiling away on this July day amid multicolored beanbags. Were it not for dozens of Apple Macintosh screens atop desks, the warehouselike space might be mistaken for a student common room.

Omar al-Abdallat, a well-known political cartoonist, clicks on one of his latest creations for Kharabeesh, Think Arabia’s Web site: a drawing of a terrified child peeking out of a hole shaped like a map of Syria. Abdallat, 32, is recruiting top cartoonists from across the Middle East to provide animated video content.

Founded in 2008 by blogger Wael Attili and friends, Kharabeesh, which means “Doodles” in Arabic, is creating videos that attract 20 million views a month.

Before there was an Arab Spring, there was a quiet revolution of sorts brewing in Jordan. The country experienced a tech boom that gained speed as young Arabs toppled regimes from Egypt to Tunisia and millions were driven online for the first time. Jordan now hosts about three-quarters of all Arabic content on the Internet, according to the Geneva-based International Telecommunication Union.

Can it last? Doubts grew in September when the Jordanian parliament passed a law curtailing freedom of expression on the Internet and giving the government broad powers to block Web sites.

“The law is so vague you could drive a truck through it,” says Abdelmajeed Shamlawi, chief executive of the Information and Communications Technology Association of Jordan.

The law, passed days after demonstrators took to the streets in Amman to protest an anti-Islam video that originated in the United States and was broadcast online, was deplored by groups such as Human Rights Watch as an instance of state censorship.

On a scale of 1 (most free) to 7 (least free), Jordan scores 5.5, or “not free,” according to the Freedom in the World 2011 report published by Washington-based Freedom House.

Still, even with large Palestinian and Iraqi communities inside its borders, and flanked by a deepening civil war in Syria, Jordan remains relatively stable by regional standards.

While online enterprises crop up from Cairo to Qatar, Amman is the closest thing the Middle East has to a Silicon Valley outside Israel. It has been dubbed Silicon Wadi (Arabic for “Valley”).

The capital, as a hub for Web businesses, could benefit from the regional market. Only 29 percent of the Middle East’s population used the Internet last year, according to the ITU. With two-thirds of the population under 30 years old, the region has one of the world’s fastest-growing Internet penetration rates.

In Jordan, entrepreneurs have been thriving. The surge in business activity is luring Jordanian expatriates back to the fold; there’s even a LinkedIn group called Jordan’s Brain Gain, with 2,700 members.

Israel, home to the largest number of start-up companies per capita in the world, is unrivaled as the region’s information and communications technology powerhouse. Its industry generated $20.5 billion in revenue in 2011, or 12.1 percent of the country’s GDP.

Although comparable businesses in Jordan produced much less revenue in 2010 — $2.2 billion — they represented 14 percent of the country’s GDP, the same share as tourism and the fastest-growing part of the economy.

‘ICT leader’

King Abdullah II, who came to power in 1999 after the death of his father, King Hussein, has for years proclaimed his modernization goals. He has tried to create incentives for entrepreneurs to build businesses such as e-commerce companies and Web-based media.

Abdullah, who was educated in Britain and the United Sates and whose wife, Queen Rania, worked briefly for Apple and Citigroup, presided over the deregulation of the Jordanian telecom industry and increased funding for computer education at schools and universities.

“We are the ICT leader in the Arab world,” King Abdullah said in an e-mail. “As a small country that accounts for only 2 percent of the region’s population, imagine what it means to us that we produce and manage 75 percent of all Arabic-language Internet content.”

And yet it was the king who endorsed the rules that have alarmed Jordan’s growing community of Internet entrepreneurs.

The law requires any Web site hosted in Jordan whose “activity includes publishing news, investigative reports, articles and comments related to the internal or external affairs of the Kingdom” to be licensed by the government and holds the sites responsible for the accuracy of their content and for user comments.

“It will have a chilling effect,” says Christoph Wilcke, Jordan researcher for Human Rights Watch.

For now, Jordanian entrepreneurs are creating some of the Middle East’s biggest e-commerce platforms, such as and MarkaVIP, to feed consumer demand — including demand from wealthy Arab women in countries such as Saudi Arabia and the United Arab Emirates.

“This is the last Internet gold rush to be had,” says Khaldoon Tabaza, the founder of Zad Capital, a venture capital firm, who is building a new holding company, called iMena, for e-commerce start-ups.

Amman is the birthplace of the Arab world’s most successful Internet venture: Maktoob, a portal that in 2000 made it possible to send and receive e-mail in Arabic. In 2009, Maktoob founders Samih Toukan and Hussam Khoury sold the company to Yahoo for $175 million.

The deal was a boon to investors. The private-equity arm of Chase Coleman’s New York-based Tiger Global Management cashed in its more than 40 percent stake. Tiger Global topped Bloomberg Markets’ 2011 ranking of the world’s best-performing large hedge funds.

The result was a “Maktoob effect,” demonstrating that the Internet in the Middle East offers business potential, says Fadi Ghandour, a Jordanian who founded Dubai-based Aramex PJSC, the largest courier company in the region.

“Maktoob has become the rallying call for young entrepreneurs,” Ghandour says.

Ghandour, 53, helped pave the way. He was a founding investor in Maktoob and is a backer of four-year-old Kharabeesh along with a dozen other start-ups. He’s also chairman of Wamda, an Internet platform that tracks entrepreneurship, and has a fund to invest in start-ups.

Start-up success is constrained by Jordan’s size, a lack of venture capital and an obstructive patchwork of customs and immigration authorities in the region. Jordan’s population of 6 million people means that tech start-ups need to target bigger and wealthier markets for profit.

“Nobody is building for Jordan; they’re building for the region and the world,” says Emile Cubeisy, who manages Accelerator Technology Holdings’ $30 million Badia Impact Fund, which provides early-stage financing for Jordanian tech start-ups. “We are a region of 300 million people that share one common culture and common language, yet as markets we are completely disconnected.”

Still, Fawaz Zu’bi, Jordan’s minister of telecommunications from 2000 to 2004, says the country’s tech industry could be generating about $4 billion a year by 2017. He founded Amman- based Accelerator Technology, which has raised a total of $80 million from investors such as Chicago-based real estate tycoon Sam Zell and C-SPAN co-founder John Evans.

Zu’bi and Cubeisy have jointly invested in 20 companies, mostly in the Middle East. One of their most successful investments is Rubicon Group Holding, an Amman-based computer animation company set up by Randa Ayoubi in 1994 with just $150,000. Ayoubi’s firm is generating about $40 million of revenue annually.

E-commerce in the Middle East is in its infancy, with only about $11 billion worth of sales, according to Amman-based Arab Advisors Group. Europe, the largest e-commerce market in the world, posted sales last year totaling $309 billion.

Perhaps the most dynamic proving ground for tech start-ups in the Arab world can be found outside Amman at King Hussein Business Park, home to Microsoft, Hewlett-Packard and a homegrown tech incubator called Oasis500.

Led by Usama Fayyad, 49, Yahoo’s former global chief data officer, Oasis500 is aiming to create 500 firms in five years by offering seed and early-stage money.

‘Boot camps’

To nurture start-ups, Oasis500 offers entrepreneurs five-week-long “boot camps” and cash infusions of $15,000 apiece in exchange for small slices of equity. From early 2010 to June 2012, Oasis500 raised about $6 million for early-stage financing. Since September 2010, it has invested in about 55 companies, double the number Fayyad originally projected; only three companies had failed as of September 2012.

Last year, after an Oasis500 angel-network event, Fayyad invested in Amman-based MarkaVIP, a Middle East-focused, invitation-only shopping site. Offering discounts on designer goods, MarkaVIP says it has 2 million users and is on track to report $100 million of revenue in 2012.

Amer Abulaila, one of MarkaVIP’s founders, and his partner Ahmed Alkhatib have spent the past year building hand-delivery and payment systems.

“We are trying to make this business scalable,” Abulaila says, chain-smoking as a Mac screen on his desk displays the pleasing sight of that day’s sales ticking rapidly upward.

The Middle East tech business is a work in progress, says Martin Gedalin, a partner at San Francisco-based Lumia who sits on MarkaVIP’s board. “There’s a lot of consumer demand in these markets,” he says, “so you see online commerce as the first wave of innovation.”

The full version of this Bloomberg Markets article appears in its October issue.