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Technological improvements, such as erbium-doped fiber amplifiers (EDFAs) and wavelength division multiplexing (WDM), have revolutionized optical transmission, boosting the development and worldwide deployment of the Internet. Similar progress has not yet impacted the routing layer, as current IP routing technology struggles to deliver the necessary bandwidth at competitive costs. Hybrid electro-optical architectures, where dynamical optical circuit switching is combined with legacy packet routing, have been introduced in the past few years as promising solutions to reduce costs at the IP layer and to deliver new revenue-generating services and applications. Most of the architectures currently proposed have focused on end-to-end lightpath provisioning, coordinated through a centralized management plane. In this paper we propose optical IP switching (OIS), a hybrid electro-optical network architecture that combines IP routing and wavelength switching, using a distributed decision-making process. We report technical and economic analysis, based on simulations obtained through real traffic traces and routing tables, that compare our distributed model to an opaque IP-over-WDM and centralized, transparent overlay models. We also report testbed results that analyze the effect of dynamic transparent switching operation on the TCP and UDP transport protocols. The results obtained show that distributed provisioning based on local traffic analysis can be feasible, although more work is required to evaluate the efficacy of optimization techniques on distributed network models.