Lake Tana, naturally existed reservoir, located in the northern portion of the Abbay river basin is thernlargest lake in Ethiopia with an average water surface area of 3110 km2 and estimated drainage area ofrn15340 km2. It is fed by four major tributaries all of them rising in the highlands surrounding the Lake.rnOne regulation weir, Chara-Chara, is constructed at its out let to regulate the lake water for hydropowerrnproductions from two existing plants (Tis Abbay I and II) and for the realization of the envisagedrndevelopment works both in the Tana and Beles Basins. With an estimated mean annual inflow ofrn12051.5MCM, water resources of the Lake is currently utilized only for hydropower generation at TisrnAbbay I & II, local transport from Gondar to Bahir Dar, largely traditional level fishing and for touristrnattractions at Tis Esat fall.rnRecently conducted Abbay river irrigated master plan project studies (BCEOM and associates, 1999)rnhas indicated that the Tana and Beles basins all together have irrigation potential of more thanrn268,000ha out of which more than 145,000 ha is identified in the upstream reaches of the Lake Tanarnreservoir. At times of realization of the envisaged development works, irrigation and hydropowerrndevelopment works are, thus, becoming competing demands in the basin. Envisaged development worksrnin the Beles basin are also competing with those in the Tana basin. This situation reveals that planningrnand reservoir operation in the basin is a serious issue that needs great attention, one of the principalrnreasons for this research work to be thought.rnEstablishing the water balance of the lake on a monthly time scale is a prerequisite to effect reservoirrnoperation. This activity is performed applying the continuity equation. Final result of the water balancernsimulation for the lake has shown that 69.2% of the inflow is lost through reservoir losses and 31% lostrnas an outflow. Currently the reservoir is operated at some operation rule that satisfies the demand fromrnthe existing hydropower plants and minimum requirements of the Tis Esat fall. Reservoir operation inrnthis research work is simulated based on deferent envisaged and existing development scenarios thatrnbear different magnitude of demands to the reservoir. Including the existing condition the research work