The authors of this Working Paper consider the effects of the current conflict on rural livelihoods and development interventions in Nepal. A historical perspective reveals that a failure of development and of governance created the pre-conditions – poverty, inequality, social discrimination and lack of social justice and democracy – for widespread discontent, and ultimately for the Maoist insurgency. Not only has the government been ineffective in providing for the needs of the poor, it is generally seen and experienced as corrupt, repressive and as working against, not for, the interests of ordinary people. International and national development agencies have also failed to strengthen the capacity and commitment of state structures or to change practices at local level to any marked degree.