A five-year plan to promote Cardiff from a "first division" city to the "premier division" has been unveiled.
Cardiff Bay is facing a second phase of regeneration
An economic strategy drawn up by Cardiff Council says the capital should be competing with successful European cities like Dublin and Prague by 2012.
It aims to establish the city as an international business location and build on its reputation for quality of life and sporting and cultural events.
But the report stresses Cardiff must improve transport systems to succeed.
Mark Stephens, Cardiff Council's executive member for economic development and finance, said: "The strategy provides a platform to move Cardiff forward on many fronts and sets out a long term vision for the city.
"It will enable us to position Cardiff as a competitive European capital city."
The report - Competitive Capital - says current developments in the city, including the St David's 2 shopping centre, the new Cardiff City stadium and the Sports Village in Cardiff Bay, will bring future investment to the capital and its surrounding regions.
It identifies opportunities for the city over the next five years, including events such as the Ashes Test in 2009 and the Ryder Cup in 2010.
The report also says there is an opportunity too for a second phase of regeneration in Cardiff Bay.
"As the waterfront matures, it is important to provide a continued programme of action to ensure the bay further develops as a vibrant business and leisure destination," it says.
According to the report, Cardiff experienced the highest percentage increase in total employment of any of the UK core cities, such as Liverpool and Manchester, with an increase of 26.9% between 1998 and 2004.
To increase the competitiveness of Cardiff as a leading international capital city
To become a widely recognised international business location that encourages growth and innovation in thriving sectors
To create a highly skilled and qualified workforce
To tackle deprivation and regenerating local communities
To ensure that Cardiff has a modern, world-class transport infrastructure
To build on Cardiff's reputation as a "quality of life" city
Source: Competitive Capital, the Cardiff Economic Strategy 2007-2012 from Cardiff Council
It also says it has a highly skilled workforce which outperforms the national average.
The city's size - "small and compact in design" - is also a plus point, with the report noting that "there is growing evidence of the future will be the smaller cities - those with human scale and a closer relationship to the natural environment".
But the report highlights a number of problems the city must overcome to reach its full potential.
These include a shortage of office space and the absence of an international business park, although there are hopes this could be addressed by 2012.
One of the main problems identified is the "polarisation of skills" between Cardiff and the south Wales valleys which needs to be addressed.
However, it says as many households in the capital are living below the poverty line than in Merthyr and Blaenau Gwent put together.
The reduction of this deprivation, particularly in inner city areas like Butetown, Grangetown and Riverside, is a "critical factor" in Cardiff's future success, the report concluded.
Deprivation in Butetown must be addressed, the report says
The report also says that with 70,000 commuters to the city, and traffic growing at 2.5% year, Cardiff is facing "considerable pressure" on the existing road network and public transport.
An over-reliance on the private car and associated heavy commuting between the valleys and coastal belt has added to growing pressure on the city's transport infrastructure, it stated.
The city needs to develop an efficient integrated public transport and "real alternatives" to the car by 2012, but is "facing huge challenges," the report said.
Russell Goodway, the former leader of Cardiff Council and current chief executive of the city's Chamber of Commerce, said transport was the key to ensuring the capital continues to improve.
"We can build a superlative capital but it needs to spread out to the regions," he said.
"There's some antagonism towards Cardiff as they [the regions] see it getting everything. We need to ensure they feel part of that success and that they benefit from that success. That's what a capital city does. Improving transport is the way to do that."
The report also raises concern at links to Cardiff International Airport, with "under-utilisation and under-capacity" needing to be addressed.
The report pulls together various studies, including a review of the city's economic competitiveness by Professor Michael Parkinson, of the European Institute of Urban Affairs.