Once the Axumite state had lost control of South West Arabia and of the Red Sea trade on which much of its wealth and power had been based, it gradually shrank to its core area, with the political center of the state shifting farther and farther southward inside Ethiopia. Axum was abandoned as a political capital by the end of the seventh or eighth century (CE), becoming no more than a religious center and as a place of coronation for a succession of kings who traced their lineage to Axum. By then, Axumite cultural, political, and religious influence had been established south of Tigray in Agaw districts such as Lasta, Wag, and Angot and eventually, in Amhara areas. The move south continued over the following centuries with Axumite culture, Semitic languages and Christianity providing the driving force. By the tenth century, a post-Axumite Christian Agaw kingdom had emerged, controlling most of the highland areas from southern Eritrea to Shewa and holding much of the coast from Adulis as far south as Zeila in Somaliland, though the Caliphate controlled the trade of the Red Sea.

The origins of the Zagwe dynasty remain obscure so does its dating, but it appears most probable that it had set up its capital at Roha or Adefa by the end of the 10th century CE. This was later known as Lalibela after the most famous ruler of the dynasty who was traditionally responsible for the carving of twelve churches out of rock.  The churches, probably carved during the reigns of several rulers, are an incredible and impressive monument, a wonder of the world and are deservedly a UNESCO World Heritage site. The Emperor Lalibela, a priest and king, was probably the origin of the medieval European legend of Prester John, a great Christian ruler who was expected to come to the aid of the Crusaders in the Holy Land and help recover Jerusalem.

In about 1270 CE, an Amhara noble, Yekuno Amlak, drove out the last Zagwe ruler and proclaimed himself emperor, founding a dynasty of rulers claiming descent from former Axumite emperors and indeed from King Solomon of Israel. To strengthen Yekuno Amlak's claims to the throne, a national epic was created (the Kebra Negast) which claimed the rulers of Axum had originated with the son of Solomon and the Queen of Sheba, the Emperor Minelik. Only descendants of Solomon could become emperors. The Zagwe rulers were thus designated as usurpers, and the accession of Yekuno Amlak could claim to be the legitimate "restoration" of the Solomonic line.

This first Shoan Amhara empire (13th to 16th centuries CE) represented the high point of the medieval civilization of Ethiopia. It is in this period that many, or most of the rock churches of Tigray region, were built and Christianity spread over much of the country, producing glorious illuminated manuscripts. With its major centers in the Amhara areas of northern Shewa and Wollo, the empire faced a series of powerful Muslim sultanates or Sheikhdoms to the south and east where a variety of peoples had embraced Islam. One of these was the Sultanate of Ifat in the foothills of north-east Shewa; another was the Sultanate of Adal, centered in the Islamic city of Harar, farther to the east and which controlled areas along the Red Sea inhabited by two other peoples who also converted to Islam, Afars and Somalis. To the south were the Sultanates and Kingdoms of Hadiya, Bali, Dawaro and Fatajar which usually paid tribute to the Christian empire, and further west, Damot.

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