We present a novel multiscale algorithm for nondestructive detection of multiple flaws in structures, within an inverse problem type setting. The key idea is to apply a two-step optimization scheme, where first rough flaw locations are quickly determined, and then, fine tuning is applied in these localized subdomains to obtain global convergence to the true flaws. The two-step framework combines the strengths of heuristic and gradient-based optimization methods. The first phase employs a discrete-type optimization in which the optimizer is limited to specific flaw locations and shapes, thus converting a continuous optimization problem in the entire domain into a coarse discrete optimization problem with limited number of choices. To this end, we develop a special algorithm called discrete artificial bee colony. The second phase employs a gradient-based optimization of the Broyden-Fletcher-Goldfarb-Shanno type on local well-defined and bounded subdomains determined in the previous phase. A semi-analytical approach is developed to compute the stiffness derivative associated with the evaluation of objective function gradients. The eXtended FEM (XFEM), with both circular and elliptical void enrichment functions, is used to solve the forward problem and alleviate the costly remeshing of every candidate flaw, in both optimization steps. The multiscale algorithm is tested on several benchmark examples to identify various numbers and types of flaws with arbitrary shapes and sizes (e. g., cracks, voids, and their combination), without knowing the number of flaws beforehand. We study the size effect of the pseudo grids in the first optimization step and consider the effect of modeling error and measurement noise. The results are compared with the previous work that employed a single continuous optimization scheme (XFEM-genetic algorithm and XFEM-artificial bee colony methods). We illustrate that the proposed methodology is robust, yields accurate flaw detection results, and in particular leads to significant improvements in convergence rates compared with the previous work. Copyright (C) 2014 John Wiley & Sons, Ltd.