The need for greater transmission capacity through optical fiber has been met so far by the wide scale deployment of wavelength division multiplexing (WDM). Still, to manage and access this bandwidth, the next growth challenge will most likely emerge at the switching nodes, where processing is needed to groom the ever diverse and changing traffic. The eventual goal is to reduce the amount of complex electronics, and thus, the cost, by migrating to the all-optical network, where data is switched and routed transparently in optical form, with a minimum amount of electronic processing. As a first step in this direction, optical cross-connects (OXCs) and optical add-drop multiplexers (OADMs) are already being introduced commercially to perform basic routing and switching functions for protection and allocation. Eventually, we envision an optical packet switched network layer that features: (i) bit rate transparency, (ii) protocol transparency, and (iii) fast switching with fine granularity. With these characteristics, an optical packet switched network layer can be a high performance and cost competitive solution for future networks. Several networking functions will be needed to deploy the all-optical transparent layer. Wavelength conversion will allow the reuse of wavelengths in the network and may help alleviate contentions. Optical synchronization and optical packet header processing (for routing and switching) will increase throughput and reduce latency. Last, but not least, all the above solutions will need to be bit rate and modulation format independent (or at least be able to handle a wide range of bit rates and modulation formats).