Newbie question: water management and path on tiny urban lot

I'd appreciate any advice I could get on improving the drainage around my house and putting in a path at the same time.  Here's the situation:

We've got a 1/8 acre plot at the foot of a small hill, in a wet climate.  The basement has flooded before; we seem to have solved that issue with some under-floor draining for now but are anxious to not make the problem worse.
The house is in the middle of the lot, which runs mostly west to east - there is limited space to the north or south of the house.
The hill is to the west of us, so the property slopes from west to east.
To the south of the house is the driveway (which takes up almost all of the property on that side), and to the southwest is the garage.  Eventually I'd like to remove the garage and driveway in favor of a larger garden, but that is far away and may never happen.
The front entrance to the house is on the east (downhill) side but we mostly use the back door off the kitchen to get to the garage (and garden).

The ground should really slope away from the house in all directions, but it doesn't in the back - it flattens out.  This flat section, about 6' away from the house, also forms the de facto path between the back door and the garage. As a result, it is a muddy mess in fall and spring due to rain and snow melt, respectively.  I would like this to be a safe, dry, attractive path, probably with stepping stones.  I also would like to divert water flowing down the hill so less of it flows into our basement.  There is nowhere to put the water on the south side of the house, due to the driveway, so the water would have to run to the north of the house.  There is an indentation to the north of the house between our house and our neighbor's house that is already fairly damp.

One final factor is that we would like to put in a small back porch in the next 2-3 years, so I want the path to end up flowing into the porch steps.

My initial thoughts were to
1) grade the land (1" per 1'?) down from the house in the back (note: adding more soil on the house side is not an option since that would get soil too close to the siding)
2) dig a trench (how far from the house?) that slopes (how steeply?) toward the northern indentation
3) fill the trench with gravel (what kind? will gravel work? do I need landscape cloth or a pipe or anything else?)
4) put paving stones on top of the gravel
5) design the path to intersect where we think the porch will go

Will this work?  Is there an easier way?  Can you put a walkway on top of a drainage ditch, or should they be separate?  I hate to do more digging than needed, and I hate to bring in gravel if it's not needed.  I don't want to put a swale in because my understanding is that it will cause a "lens" of water to form downhill of it (i.e., in my basement!) but if someone can convince me that won't be a problem, a swale or terrace or something might be OK.

Thank you!

Steven,

Just reading what you said sounds good to me. Maybe adding pictures, however, would help us see. Maybe an overhead view too?
Basically, what I imagine, is digging a diversion swale on your west side. I'd line it with river rock, and maybe gravel in the center for walking on, but it's not common to walk IN a diversion swale. Maybe layout a path next to it? The dirt you dig up could be used to make a raised path, and then cover it with gravel so it's not so muddy. If you plant water loving vegetation, this will also help with erosion.
If you dig a swale, could you run it to the far side of your driveway? Between your driveway and your southern property line? What is your driveway made out of?

Steven, We had sort of the same problem with our first house... the backyard was at the base of a hill, sloped to the house , formed a lake, etc..
We graded the backyard so that it sloped away about 20 feet from the foundation with about a 1 foot drop, then out another 40 feet which was basically level for a lawn.
On the closest 20 feet we put down a cover of landscape fabric, sand, and bricks to form a nice patio. The water would quickly flow off of this .
At the "low spot" between the lawn and the patio we dug a ditch that would divert any heavy water flow from one end of the patio to the other, parallel with the house, then it took a 90 degree turn out to the front of the house to the street.
The "uphill" ditch was about 6'' deep and the "downhill" was about 18 inches deep so that the water would flow off the lawn and patio, along the ditch and out to the street.
We lined the ditch with plastic, set a four inch drain pipe in the bottom (pipe had holes in it) ,put landscape fabric over the pipe to keep it clean, and filled the ditch with gravel.
The ditch was "bordered" by parallel strips of wood which helped define the edges of the bricks and the lawn and keep grass or sand from filling up the trench.
This worked for us for the 15 years that we lived in the house and I assume it is still working today.
We all walked on the gravel and although it wasn't really a walk way, as it was only about a foot wide, I think a walkway could probably be built in the same way.

To the south of the house is the driveway (which takes up almost all of the property on that side), and to the southwest is the garage.  Eventually I'd like to remove the garage and driveway in favor of a larger garden, but that is far away and may never happen.  

I can see why you are pining to get rid of the southern driveway and SW garage.  Your garage is in the Southwest and I'm assuming this is a source of shade on your small garden to the west of your house, and that your house is also a source of shade in the latter part of the day.  Is that right? Bummer.  And your driveway is on the South... double bummer.  Yeah... I would definitely consider getting rid of those.  Perhaps you can move your garage to the South East Corner?

I tried to do a sketch of your description (on paper for the purpose of clarity for me), but there are some missing elements.   I have to assume your roadway is to the East from your description.

What is the gap between your driveway and your South property line? None at all?  If there is a little gap, great!  If not, is it possible to break up that edge of the driveway (sacrificing a foot) and direct water along the south line towards the East, to the roadway with a drainage ditch/pipe/drainrock/landscape fabric?  See below for details.

Where are your house and garage roof's draining?  This should be directed as far as you can to the East before it hits the ground, and possibly out of the property as described above.  

What is the gap between your garage and your property line?  If there is a space there, a drainage ditch along the western property line could take the excess hill water, away from the rest of your property to either the north indentation that you speak of or the South as I have described above.  If there is not much room between on the North of your house, how do you plan to keep the increased water in the indentation from coming into your basement?  Is the slope away from the house that great that you are not concerned?  This might be a concern in my mind; just sayin.  Also you may end up with unhappy neighbors if you make this indentation into a much wetter place.

fill the trench with gravel (what kind? will gravel work? do I need landscape cloth or a pipe or anything else?)

When you build your trench/path system, you really should use perforated drain pipe.  Use round stones (called drain rock), not crushed angular gravel, and put that around and on top of the pipe, and do put landscape fabric on top of the rock to keep silt/dirt out of the system, then, put your path paving stones.  This gravel/pipe/landscape fabric will improve drainage greatly.  Here's a blurry but sufficient youtube video of a guy doing it.  Skip the first minute and watch until minute 4ish.