The study area is found North Western plateau in the North Gondar zone, Amhara regional state. Its totalrnsurface coverage is 1887km2.The study area boundary was delineated from 90m Shutter Radar TerrainrnMapping (SRTM) digital elevation model (DEM) using Global Mapper 8 software. This boundary was servedrnas the divide line of groundwater flow while stream networks were used as internal drainage lines. Inputrnparameters such as hydraulic conductivity and recharge were obtained from past studies and modelersrnknowledge. Based on geologic information of the study area, unconfined subsurface flow condition wasrnconsidered and simulated using MODFLOW 2000.rnThe model calibration accounts the matching of the 58 observation point with simulated head with arnpermissible residual head of Â±10m. 75% of the difference the observed and measured water level head in thernstudy area is 5m. . The model was calibrated with mean error 0.506, absolute mean error 4.431m andrnstandard deviation 6.083m.rnThe sensitivity of the major parameters of the model was identified during calibration process. Based on therncalibration process, the model is very sensitive in decreasing order change in recharge, hydraulicrnconductivity, and stream bed conductance respectively.rnThe simulated water budget has been computed for the study area. The simulated out flow of the model isrn205733827.88m3/year which is nearly equal to simulated inflow with difference 2887.5 m3/year. The basernflow simulated discharge holds 35.75% of the out flow. It also contributed as recharge in to the aquifer thatrnaccounts to 15.30% of the inflow. This share of base flow implies the discharge of the groundwater to therndominantly gaining streams and high interaction of surface and aquifer systems.rnTwo scenarios of increased groundwater withdrawals have been conducted. In the first scenario, fifernincreased withdrawals amounts were distributed among exciting wells in proportion to the currentrncontribution of each source to the daily withdrawal rate. Steady state withdrawal rates were increased byrn15%, 35%, 55%, 75% and 100% to study the response of the system in this scenario. From the above fifernsimulation results, one can observe that the development of a new groundwater sources would not posernappreciable impact in case of 15% and 35% withdrawal the head declines in this case is insignificant relativernto the steady state withdrawal rate and the natural discharges were not altered highly. In the secondrnscenario, increased groundwater withdrawal in Gondar-Azezo town and its periphery well fields werernsimulated. The simulation result indicated that the stream leakage decreased by 7.9% relative to the wholernsteady state value, but showed 14.9% decrease for Angereb, Keha, and Shinta river segments near the wellrnfield area. The water tables decline by 3.57m to18.81m in head observation in the well field area. The lowerrnAngereb well field head decline is significant when compare with other near well fields.rnThis scenario simulates also decreasing recharge to aquifers that result from environmental changes,rnexpansion of agriculture, deforestation and town expansion. The steady state simulated recharge wasrndecreased by 32% and the simulation results showed on average head decrease of 8.06m over the wholernarea; with the highest fall 32m in wells to north and a minimum of about 1m in wells to the south. In addition,rnthe stream leakage, compared to the simulated steady state value and it was decreased by 75.36%.rnThe effect return flow of irrigated water and development of Megech reservoir were simulated simultaneouslyrnto see the effects on groundwater level changes and stream leakage. In the simulation the response of thernsystem was compared with the steady state simulated water levels and stream leakages. The differencesrnshowed the effect of development of Megech reservoir and irrigation on the groundwater. The simulatedrnvalue showed an average 2.74m increased head over the whole area. High difference values were observedrnat Tseda (7.83m) and Koladiba (7.3m). The minimum difference 1.08m was recorded at Angereb well fieldrn(observation 94). In addition, the stream leakage increased by 87.43%.