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Internet technologies are facilitating the development of an environment where companies are outsourcing activities that are not a part of their core competencies to third-party service providers. SLAs between the customer and service provider define the quality of service guarantees for the services provided. The management of these application services requires a framework that enables the service provider to offer services that are dynamic in nature, can be offered with differentiated levels of service to each customer, and can optimize the use of the service providers application resources to deliver the services in a cost effective manner. Although a number of frameworks have addressed each of these areas separately, to-date no framework has been proposed that provides an integrated approach to solving these issues. In this paper we present the design of dynamic service manager (DSM), a framework for the management of dynamic services in a service provider environment. DSM provides an integrated approach for dynamically building customer-specific services with associated quality guarantees, whilst managing the underlying application resources of the service provider so that the service is delivered in a cost effective manner. It enables the service provider to dynamically allocate application resources to customer requests and uses optimization techniques to do so in a cost effective manner. We experimentally demonstrate the efficacy of our approach through the construction and evaluation of two prototype applications which have been built using the DSM framework.