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The exponential growth of data traffic has led to substantial deployment of wavelength-division multiplexing networks. Reliability becomes increasingly important as the number of critical applications that depend on proper operation of these networks grows. Protection against failures of links or nodes can be achieved using a wide variety of approaches, which offer tradeoffs in terms of speed of recovery, cost of equipment, protection capacity, and management overhead. Optically transparent networks provide several advantages over optically opaque networks for supporting the growing communication demands, but suffer from several drawbacks that make direct application of the most capacity-efficient protection schemes difficult. In this paper, we introduce a flooding-based recovery scheme for optically transparent networks that provides 100% recovery from all single link and node failures in a capacity-efficient manner. In essence, this scheme applies the notion of active flooding of backup traffic introduced by generalized loopback to the problem of path protection. Our recovery scheme can achieve fast restoration (comparable to rings) with little data loss by using backup traffic flooding without the overhead of signaling and setup of intermediate cross-connects along the recovery path. We present simulation results for online provisioning of lightpaths with uniformly distributed traffic demands over optically transparent networks using our restoration scheme. The results show that the scheme offers an interesting tradeoff between capacity cost and recovery speed for all-optical networks. For five representative networks, the approach limits data loss to about 20 ms while using 14% less capacity relative to dedicated (1:1) mesh protection. Shared mesh protection (path protection) with a wavelength continuity constraint uses 19% less capacity with roughly 90 ms of data loss.