Controlling access to the Red Sea, Djibouti is of major strategic importance, a fact that has ensured a steady flow of foreign assistance.
During the Gulf War it was the base of operations for the French military, who continue to maintain a significant presence.
France has thousands of troops as well as warships, aircraft and armoured vehicles in Djibouti, contributing directly and indirectly to the country's income. The US has stationed hundreds of troops in Djibouti, its only African base, in an effort to counter terrorism in the region.
Djibouti's location is the main economic asset of a country that is mostly barren. The capital, Djibouti city, handles Ethiopian imports and exports. Its transport facilities are used by several landlocked African countries to fly in their goods for re-export. This earns Djibouti much-needed transit taxes and harbour fees.
After independence from France in 1977, Djibouti was left with a government which enjoyed a balance between the two main ethnic groups, the Issa of Somali origin and the Afar of Ethiopian origin.
But the country's first president, Hassan Gouled Aptidon, installed an authoritarian one-party state dominated by his own Issa community. Afar resentment erupted into a civil war in the early 1990s, and though Mr Gouled, under French pressure, introduced a limited multi-party system in 1992, the rebels from the Afar party, the Front for the Restoration of Unity and Democracy (Frud), were excluded.
Thus, Mr Gouled's Popular Rally for Progress party won every seat and the war went on. It ended in 1994 with a power-sharing deal which brought the main faction of Frud into government. A splinter, radical faction continued to fight until 2000, when it too signed a peace deal with the government of Gouled's successor, Ismael Omar Guelleh.
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President: Ismael Omar Guelleh
Ismael Omar Guelleh, known in Djibouti by his initials, IOG, won a second term in a one-man presidential race in April 2005.
Parliament - which does not include any representatives of the opposition - approved an amendment to the constitution in 2010 allowing the president to run for a third term.
The constitutional reforms also cut the presidential mandate to five years from six, and created a senate.
Mr Guelleh's second term expires in 2011 and speculation has surrounded his plans for a third mandate.
He succeeded his uncle and Djibouti's first president, Hassan Gouled Aptidon, in April 1999 at the age of 52. He was elected in a multi-party ballot.
Mr Guelleh supports Djibouti's traditionally strong ties with France and has tried to reconcile the different factions in neighbouring Somalia.
A chronology of key events:
825 - Islam introduced to the area.
French rule
1862 - France acquires the port of Obock.
1888 - French colony of Somaliland established over the region.
1892 - Djibouti becomes capital of French Somaliland.
1897 - Ethiopia acquires parts of Djibouti after signing a treaty with France.
1917 - Railway connecting the port of Djibouti with the Ethiopian hinterland reaches Addis Ababa.
1946 - Djibouti made an overseas territory within the French Union with its own legislature and representation in the French parliament.
1958 - Djibouti votes to join the French Community.
Independence
1967 - Referendum takes place during which Afar people and Europeans vote to remain part of the French Community; French Somaliland renamed the French Territory of the Afars and the Issas.
1977 - The French Territory of the Afars and the Issas becomes independent as Djibouti with Hassan Gouled Aptidon as president.
1979 - People's Progress Assembly party set up with a view to uniting the Afar and Issa peoples.
1981 - Djibouti becomes a one-party state with the People's Progress Assembly as the sole party.
1992 - A constitution allowing for a limited multiparty system adopted; fighting erupts between government troops and the Afar Front for the Restoration of Unity and Democracy (FRUD) in the northeast of the country.
Power-sharing agreement
1994 - The government and the main faction of FRUD sign a power-sharing agreement officially ending the civil war; the radical faction of FRUD continues to fight.
1995 - French Judge Bernard Borrel dies under mysterious circumstances in Djibouti. He was advising the Djibouti government, and reportedly investigating arms smuggling.
1999 - President Aptidon announces that he will not run in the presidential election; Ismael Omar Gelleh elected president.
2000 February - The government and the radical faction of FRUD sign a peace agreement finally putting an end to the civil war.
2000 March - Former Prime Minister and leader of the radical faction of FRUD Ahmed Dini returns to Djibouti after nine years in exile.
2000 December - Coup attempt said to have been masterminded by sacked police chief General Yacin Yabeh Galab fails and Yacin charged with conspiracy and breaching state security.
2002 January - German warships and 1,000 sailors arrive in Djibouti to patrol shipping lanes in Red Sea area, in support of US actions in Afghanistan.
2002 September - 1992 law allowing only three other parties to compete with ruling party expires, paving way for full multi-party politics.
2002 September - Djibouti says it won't be used as a base for attacks against another country in the region. Some 900 US troops set up camp in support of US-led war on terror.
2003 January - Coalition supporting President Ismael Omar Gelleh - the Union for Presidential Majority - wins Djibouti's first free multi-party elections since independence in 1977.
Anti-immigrant drive
2003 September - Government begins drive to detain and expel illegal immigrants, thought to make up 15% of population.
2004 April - At least 50 people die in flooding in the capital.
2005 April - Presidential elections: Incumbent President Guelleh is the sole candidate.
2006 April - More than 90 passengers drown when a boat carrying hundreds of pilgrims capsizes shortly after leaving port.
2006 May - First human bird flu case in sub-Saharan Africa confirmed in Djibouti.
2006 November - A UN report says several countries, including Djibouti, have flouted a 1992 arms embargo on Somalia by supplying the rival Islamist administration in Mogadishu. Djibouti denies the allegation.
2007 March-April - Drought declared in some inland areas. United Nations World Food Programme (WFP) says some 53,000 people could go without food rations unless funding is found.
Borrel probe
2007 October - Mass protests against international arrest warrants issued in France for officials accused of blocking probe into 1995 death of French judge Bernard Borrel.
2008 January - Djibouti begins legal battle with France in the International Court of Justice in The Hague over the probe into the death of French judge Bernard Borrel.
2008 February - Ruling coalition wins all 65 seats in parliamentary elections which are boycotted by the three main opposition parties.
2008 June - Fighting breaks out between Djiboutian and Eritrean troops in the disputed Ras Doumeira border area. At least nine Djiboutian soldiers killed. US condemns Eritrean "aggression" but Eritrea denies launching an attack.
International Court of Justice rules that France is not obliged to share information it gathered in investigation into the 1995 death of French judge Bernard Borrel.
2009 April - UN Security Council says Eritrea has failed to fulfil its obligation to withdraw troops from disputed border area of neighbouring Djibouti. Eritrea denies having troops on Djiboutian soil.
2009 December - UN Security Council approves tough sanctions against Eritrea for supplying weapons to opponents of the Somali government and refusing to resolve border dispute with Djibouti. The Djibouti government welcomes the move.
2010 April - Parliament approves constitutional amendment allowing president to run for a third term.
2010 June - Eritrea, Djibouti agree to resolve their border dispute peacefully.
