After 1991, the EPRDF redefined foreign as well as internal policies. The Foreign Policy and National Security Strategy [link here] identifies the major threats to the country and to its survival: economic backwardness, widespread poverty, the need for democracy and good governance together with the establishment of a democratic structure and democratic government at all levels. This in turn requires a commitment to peace and security, internally and regionally. In this Ethiopia has been largely successful in achieving good relations with its neighbors, with the exception of Eritrea.

In 1991, by agreement with the EPRDF, whose ally it had been in the fight against the military dictatorship, the EPLF took power in Eritrea and the region became de facto independent. In April 1993 a referendum was held in Eritrea and among Eritreans elsewhere, including Ethiopia, on taking independence or remaining part of Ethiopia. The issue of continued association through a federation or confederation was dropped from the referendum paper despite an earlier agreement to include this as an option. An overwhelming majority voted for independence which was formalized in May 1993, though an estimated 400,000 Eritreans living elsewhere in Ethiopia chose not to participate in the vote.

Relations between the new state and Ethiopia appeared close for the first few years though Ethiopia was concerned by the aggression Eritrea showed towards Sudan, Yemen and Djibouti in the mid 1990s in an apparent attempt to formalize its borders and establish a role as the major player in the region. This process culminated in May 1998 when Eritrea precipitated a shooting incident inside Tigrai regional state in northern Ethiopia and immediately invaded with two brigades to seize control of a small town, Badme, inside Ethiopia, claiming it as part of Eritrea.

The subsequent war lasted for two years although the actual fighting was confined to three relatively short campaigns, in May'June 1998, February to June 1999 and May-June 2000. These, howwever,  left  and led to  at least 60,000 casualties, as well as the expulsion of tens of thousands of Eritreans from Ethiopia (the majority of whom had voted for an independent Eritrea in the referendum of 1993) and at least as many Ethiopians from Eritrea. Hundreds of thousands on both sides were forced to flee from the war zones all along the common border. Ethiopia recovered Badme in February 1999 and won a series of victories in May and June 2000 threatening attacks on Asmara and Assab. These defeats finally forced Eritrea to accept the Algiers Agreement, signed in December 2000. This allowed for a 25 km wide demilitarized zone inside Eritrea to be monitored by a UN force. It also set up a Boundary Commission to look into the border issue and a Claims Commission which evaluated the claims made by both sides and, inter alia, detailed Eritrea's responsibility for the conflict. The Boundary Commission reported in April 2002. Eritrea and Ethiopia, although it had some concerns about the details, have both accepted the report, but Eritrea has consistently refused to make any moves towards the dialogue necessary to allow for the demarcation of the border and the normalization of relations. It has also in effect torn up the Algiers Agreement by forcing out the UN Mission to Eritrea and Ethiopia (UNMEE) which had been monitoring the demilitarized zone and seizing control of it. In addition, by making destabilization of neighboring countries the central element of its foreign policy, it has caused serious security problems ay various times for Ethiopia, Somalia and Djibouti as well as both the Sudan and South Sudan.

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