This paper analyzes the physical-layer design issues of a two-level hierarchical topology for an optical local-area network (LAN) employing wavelength-division multiplexing (WDM). In a two-level hierarchical topology, all the stations, instead of being connected to a single passive star coupler (PSC), are first clustered in several groups, each of them employing a separate PSC. Several such clusters are interconnected by an optical backbone to form the higher level of the network.