Natural resource degrodation is a critical problem in the highlands of Ethiopia in eluding thernstudy area (kebelie-chekorti micro-catchment). In order to address this problem, the Ministryrnof Agriculture and Rural Development together with nOll-state actors like World FoodrnProgram (food aid projects) have launched envirollmental rehabilitation programs usillgrnfood aid resources in different parts of Ethiopia including the study site for the last tworndecades. However, there is a debate 0 11 possible effects of food aid projects in ruralrndevelopment. This research, therefore, has attempted to assess the effect of MERET projectrnon some selected livelihood variables. III addition, watershed management problems werernalso investigated in the study. In conducting th e study, formal. survey; focus grouprndiscussion/PRA, key informants interview, laborotory analysis and review of secondaryrnliterature were employed as major data collection method. The findings indicate that with thernaid of MERET project, moderate changes have been registered in the study sub-catchment. Itrnwas found out that as a result of the intervention of the project (communal and farm landrnconservation, alld gully rehabilitation activities), the availability of forage and fire wood hasrngOlle up moderately. The study also revealed that the project contributed ill maximizing thernamount of food crop production, self and wage employment opportunity, and increosedrnconservation awareness among the community. However, compared with the objective of thernproject, the task of replicating model project sites into other near by degraded communal andrnprivate farm land is at moderate level. As a result, the problem of land degradation and foodrninsecurity prevails in the study area. The research also indicates that wrong perception, lackrnof awareness, tenure insecurity, short term needs, resource based conflict, and drought arernthe major problems weakening the effectiveness, efficiency and sustainability of the 011 goingrnwatershed development in the micro-catchment. Th erefore, with the aid of developmentrnprojects like MERET, applying micro level watershed planning, pursuing illterdisciplinwyrnand participatory approach, building up 011 indigenous knowledge system, addressing ofrnfarmers priorities, ensuring of land tenure security and implementatioll of targeted systems isrnthe appropriate option to achieve the required rural development.