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We propose a novel switching architecture of multigranularity optical cross-connects (MG-OXCs) for dealing with multigranularity traffic in the optical domain. MG-OXCs can cooperate with the generalized multiprotocol label switching (MPLS) control plane, which provides the advantages of cost reduction, better scalability in physical size, and unified traffic management. Detailed discussions are provided on the characteristics and implementation issues for the switching architecture. Based on the proposed MG-OXCs, two routing and wavelength assignment (RWA) with tunnel allocation algorithms are presented: dynamic tunnel allocation (DTA) and capacity-balanced static tunnel allocation (CB-STA). In the former, we use fixed alternate routing with k-shortest paths to inspect network resources along each alternate path for dynamically setting up lightpaths. For the latter, fiber and waveband tunnels are allocated into networks at the planning stage (or off-line) according to weighted network link-state (W-NLS). We will show that with the proposed algorithms, the RWA problem with tunnel allocation in the optical networks containing MG-OXCs can be solved effectively. Simulation is conducted on networks with different percentages of switching capacity and traffic load. The simulation results show that DTA is outperformed by CB-STA in the same network environment due to a well-disciplined approach for allocating tunnels with CB-STA.. We also find that the mix of the two approaches yields the best performance given the same network environment apparatus.