Precise cost modelling of core networks for next generation Internet (NGI) based on the IP-over-DWDM architecture requires new optimization models. The models used today are not sufficiently precise to capture the grooming capabilities of NGI, especially when combined with the modern demand routing and resource restoration (in case of failure) mechanisms. Consequently, relevant optimization algorithms for network design and cost comparisons have not been developed. In this project we will address both issues. First, we will specify a generic but detailed network model taking into account the internal node structure and cross-layer links in a multi-layer resource network architecture, and apply it to the IP-over-DWDM architecture (and in fact, as a by product, to the emering service overlay networks, SONs). Then we will make an effort to devise efficient optimization algorithms by expanding and tailoring existing methods developed within the multi-commodity flow network theory of operations research. The efficiency of the proposed algorithms will be illustrated by numerical studies.