Objectives: One of the outcomes of the ongoing urbanization in developing countries is the urbanization of poverty and the concomitant formation of informal settlements in or around mainly the large cities. These settlements are the physical manifestation of poverty and are the home for the poor who cannot afford to buy their house from the formal market and in accordance with zoning and building regulations. In spite of many common characteristics, two categories of informal settlements have been distinguished in the literature in terms of their capability to progress or regress. This article will examine the existence and the attributes of these categories in an Iranian city, named Kermanshah with around 800 thousands inhabitants, of which 150 thousands live in informal settlements and this figure is growing hastily.Method: An empirical study combining both quantitative and qualitative methods was undertaken. The necessary data and information at city scale are collected from the existing sources, such as formal documents, official reports and statistical publications, aerial and satellite pictures and previous academic researches. For the selected cases, field observations and sampling survey have been used for the quantitative data and focused group discussions have been undertaken for the qualitative data. In addition, more than thirty hours of planned and serial interviews with the informal settlers, local authorities, and experts were recorded about the concealed aspects of these settlements. The field observations have done through one and a half year, in a semi-participatory and semi-apparent manner. A major part of households data are collected through 200 questionnaires, administered in three neighbors. The analysis of collected data was done with the help of SPSS and GIS software.Findings: Fundamental differences observed amongst informal settlements which are in progressing or depressing states. Thus, the categorization of slums of hope and slums of despair is true in the case of Kermanshah city. In case of slums of hope, the socio-economic status of dwellers is improving. They are not new and are consolidated gradually with the formal part of city. Most of them were formed informal (but not necessarily illegal) on subdivided agricultural lands in or adjacent to the city, bought from big landlords. During the past decades, taking advantage of the philanthropic attitude of the state, they have been marching toward a higher level and though the relative poverty is a major issue, the absolute poverty is almost nonexistent. In case of slums of despair, the situation is vice versa. They are a minor portion of all informal settlements, squatting illegally with the support of clandestine bands. In the wake of secure tenure and lack of basic social services, the accumulation of very poor people, has created a cycle of poverty. As a result, the socio-economic and physical indicators are very low and downgrading. In contrast to conventional formulation, not all the dwellers of slums of despair are low income rural migrants, but some previously urban habitants were resettled in these pockets of poverty due to some pathological causes. The major differential factors between the two categories derive from the background of dwellers, the originating formation and the contextual socio-economic and environmental conditions, as well as the crucial effect of municipal and urban planning approach toward them.Results: Considering the importance of urban planning approach on the informal settlements, different policies for regularization and upgrading of these settlements should be employed on the basis of distinguishing their status as being a slum of hope or despair. There is an urgent need for remedies in case of slums of despair, mostly revolve around providing social services (e.g., social security, health and educational services) and income generation programs (e.g., LED and CED). In case of slums of despair, the pivotal policy should be concentrated on building citizenship through institutionalization of community efforts for physical upgrading as part of initiating good governance.