Im sure modern diesels dont have to be so dirty, they are just using very old engines.
In Canada there have been successful trials of fuel cell buses. I know they need to generate the hydrogen from somewhere, but there are no toxic emmisions at the bus. Even liquified natural gas fuel is a whole lot cleaner in converted diesel engines.
All it needs is some government money to kick start the market for a whole bunch of short range utility vehicles with central depots. They all refuel at the depot so there are none of the problems faced by private motorists with new fuels.