Nepal's royalist government and Maoist rebels signed a peace accord in 2006, ending a 10-year civil war that killed 13,000 people and displaced hundreds of thousands.

The Maoists transformed themselves from guerrillas to politicians, taking their seats in an interim parliament in early 2007 and joining an interim government.

But despite enormous political progress and a nationwide ceasefire, the political future of the Himalayan nation - one of the world's poorest countries - remains far from certain.

Nepalis went to the polls in April 2008 to vote for a constituent assembly with a mandate to draft a new constitution and formally scrap the country's 240-year-old monarchy.

King Gyanendra came to power in 2001 after the former king was murdered in a palace massacre. The monarchy's popularity fell when Gyanendra grabbed absolute power in early 2005. He was forced to restore democracy the following year after mass street protests and was stripped of almost all his powers.

The road to the elections was rocky. They were previously scheduled for November 2007 and the fate of the royal family was supposed to be decided by the elected assembly.

However, the Maoists quit the government ahead of the polls saying the king was trying to sabotage them. They vowed to disrupt preparations unless the monarchy was abolished immediately. The Maoists returned to government at the end of 2007 after parliament voted to end the monarchy.

Nepal, once the world's only Hindu kingdom, formally became a republic in May 2008 when the newly-elected assembly held its first meeting and abolished the monarchy.

The country's peace process was overshadowed by a flare-up of violence in 2008 in the southern plains, where ethnic Madheshi groups have been waging a low-level insurgency. A mass strike forced the government to promise greater regional autonomy. (See below for more on this.)

Nepal became a constitutional monarchy in 1990 following a popular movement against the existing non-party system headed by the royal family.

Democratic elections were held in 1991, but there followed a series of weak, short-term governments with a reputation for in-fighting and corruption. This instability was a key factor behind the launch of the Maoist insurgency in 1996.

The Maoists' aim was to topple the monarchy and establish a single-party communist republic. They were led by Pushpa Kamal Dahal, widely known as Prachanda, which means "militant" or "terrible".

Prachanda was sworn in as the republic's first prime minister in August 2008.

Estimates of how much of rural Nepal fell under Maoist control vary from nearly half (UNICEF) to 80 percent (Refugees International). Government security forces held all district headquarters and urban areas.

Underdevelopment outside the capital, particularly in the mountainous western regions, fuelled support for the rebels among the poor, who blamed the government for failing to address the country's gross inequalities.

Nepal's king was traditionally considered an incarnation of the Hindu god Vishnu, but the reputation of the royal family has become badly tarnished.

In 2001, King Birendra and other royals were gunned down in a drink-fuelled shooting spree by the crown prince, who then turned the gun on himself.

Birendra's brother Gyanendra took over. Violence escalated in early 2005 when he sacked the entire government and seized absolute power after accusing politicians of ruining the country.

The seven main parties responded by burying their deep distrust of the Maoists and agreeing to work together to end the autocratic monarchy.

In February 2006, the king held municipal elections but they were boycotted by the opposition and the international community questioned their legitimacy.

These elections were the trigger for increasingly strident expressions of discontent among the civilian population.

In April, protesters took to the streets in their thousands. Many pro-democracy marches turned violent as security forces cracked down. At least 22 people were killed and thousands wounded during the demonstrations before the king backed down.

Veteran politician Girija Prasad Koirala was appointed prime minister after the king reinstated parliament and the Maoists declared a ceasefire.

Gyanendra was subsequently stripped of most of his powers including control of the army.

The return to democracy paved the way for peace talks, leading to a deal in November. Under the pact, the Maoists agreed to lock up their weapons and confine fighters to U.N.-monitored camps.

They also promised to allow thousands of displaced people to return home and to hand back property including land, homes and cattle seized during the war.

But the United Nations says the former rebels are not letting everyone return home and are even attacking some who try to do so.

Another key agreement was that the Maoists would release child soldiers. In December 2008 Prachanda promised to release nearly 3,000 children from Maoist camps which house 31,000 ex-guerrillas.

The rebels were made up of former members of the Communist Party of Nepal, founded in 1949.

They are referred to as Maoists because they claim an ideological legacy from the Chinese revolutionary leader Mao Zedong.

They were involved in the establishment of Nepal's first multi-party government in 1990 but dropped out in 1995 when their party splintered.

A year later, they launched their armed campaign under a new name, the Communist Party of Nepal - Maoist.

Their demands included an end to the constitutional monarchy, the expulsion of all Indian influence and an end to discrimination based on the Hindu caste system, ethnicity and gender.

A wide range of people who faced bleak economic prospects, high unemployment and poor education and healthcare turned in hope to the Maoists' cause.

During the war, the Maoists tended to attack police stations and government officials, but also targeted suspected police informants, landowners and other civilians.

They set off bombs and wrought havoc by cutting telephone and electricity lines and enforcing economic and transport blockades of the capital Kathmandu.

Villagers often found themselves caught in the middle. Maoists would threaten to punish them if they refused to provide shelter for rebel soldiers. But when they did, they became vulnerable to attacks by state security forces.

Analysts say the Maoists imposed an increasingly authoritarian regime on many parts of rural Nepal, regularly abducting civilians and often forcing at least one person from each family to join them.

Vigilante groups were formed to protect villagers, many of which were supported directly or indirectly by security forces, according to the United Nations. Local media reported incidents of mobs killing and terrorising people suspected of being Maoist supporters.

Following the peace deal, U.N. human rights monitors hope to promote a criminal justice system that will be accessible to all, including lower castes, women, survivors of sexual violence and the rural poor. But little progress has been made on how to deal with crimes perpetrated during the conflict.

No precise figures exist for the number of people uprooted by the war. The Internal Displacement Monitoring Centre puts the figure at between 50,000 and 70,000.

The United Nations says that fighting has not always been the direct cause of people leaving their homes. Some were forced to move due to a lack of basic services and work opportunities.

Many have drifted to urban centres, where they have ended up living in slum conditions. As many as 2 million have crossed the border to India in recent years.

Internally displaced people include former landowners, political party members and families who have left their villages in search of work after the war destroyed their livelihoods.

According to the United Nations, some highland villages have lost up to 80 percent of their population with only vulnerable groups, such as the elderly, left behind.

In March 2006, the government announced plans to adopt a new policy to identify and help the internally displaced.

In the year following the signing of the peace deal, many of the displaced started to return to their homes and rebuild their lives.

Nepal is also home to refugees from other countries. The U.N. refugee body, UNHCR, says about 105,000 Nepali-speaking Bhutanese refugees live in camps in Nepal, having been stripped of their nationality and expelled from Bhutan in the early 1990s. There are also about 20,000 Tibetan refugees.

More than 8,000 children have lost one or both parents since the start of the Maoist rebellion, rights groups say. At least 375 children have been killed by government forces and Maoists.

According to the U.N. children's fund UNICEF, children under 16 in rebel-controlled areas have been trained in guerrilla warfare. UNICEF also received reports of Maoists using children as cooks and porters near the frontline.

The conflict has severely disrupted the education system, UNICEF says. Maoists have killed and threatened teachers, and kidnapped thousands of school children.

The fighting has also hampered the government's ability to deliver even basic health care. Half of children under five are underweight, according to the U.N. Development Programme.

Human rights groups say more than 1,000 people disappeared during the civil war, but the number may be far higher.

They accuse both the army and former Maoist rebels of killings, arbitrary arrests, rape, torture and kidnappings during the conflict and say some abuses continue even now.

In May 2005, the United Nations set up a human rights office in Nepal to monitor and investigate human rights violations. It is the second largest such office in the world.

The victims were usually suspected government informants, local political activists, local government officials and individuals who refused extortion demands from the Maoists.

The Maoists also executed off-duty army and police officers, often capturing them when they returned to their home villages. Typically, the rebels informed the family of the killing and threatened them with similar treatment if they disobeyed Maoist demands.

Nepal's peace deal envisaged setting up a South Africa-type truth and reconciliation commission to tackle rights abuses and the cases of people who went missing.

Amnesty International has warned that Nepal risks a return to violence unless the government honours this promise. It has also urged the government and the Maoists to provide immediate information about missing people to their families. The U.N. human rights agency made similar warnings at the end of 2007.
The end of the war has been clouded by the emergence of violence in the southern lowlands, home to ethnic Madheshis who have closer linguistic and cultural ties with northern Indians than the hillfolk of Nepal.

Madheshis are the majority in a fertile strip called the Terai where almost half the country's population lives. The Madheshis say they are discriminated against by Nepal's ruling elite, which is dominated by people from the northern hills.

Dozens of people have been killed during protests by Madheshis demanding regional autonomy. Mass strikes and demonstrations also threatened to derail the country's April 2008 elections.

In late February 2008, the government agreed it would give more autonomy to the southern plains after the elections in a deal to end a strike that had strangled Kathmandu.

While the decision delighted many Madheshis, some analysts say the deal with civilian protest groups does not necessarily mean the trouble is over as armed groups fighting a low-level insurgency in the region may prove harder to satisfy.

During the conflict government officials and international aid workers found it hard to access areas controlled by the Maoists. This made it difficult for them to gather information, deliver aid and provide even basic health and education services.

The United Nations says there are many local non-governmental organisations in Nepal, but they need stronger international support to deliver aid. There are around 45 international NGOs in Nepal.

Rural areas, particularly in the mountainous west, suffer much higher levels of poverty than Kathmandu.

According to the United Nations, 86 percent of the population lives on less than $2 a day.

The United Nations says the conflict cut the growth rate to 2 percent in 2004-05, but there's hope that the return to peace could boost tourism and wider economic growth.

Tackling growing inequalities between social groups is seen as a key challenge for the development community.

With regard to the Millennium Development Goals, the United Nations has said Nepal is likely to meet targets for cutting infant death rates and increasing access to safe drinking water, but could miss targets on education and stemming the spread of HIV/AIDS.

The country is also supposed to halve the number of people living below the poverty line from 42 percent in 1990 to 21 percent by 2015.

A senior finance ministry official has said the country will need around $1.2 billion for post-conflict reconstruction.