One of the most important developments in the History of Horn of Africa is the achievementrnof independence by Eritrea in 1991. This changed the geo-politics of the region andrndetermined the type of relations that the Horn countries should have. As far as thernrelationship between Ethiopia and Eritrea were concerned friendly and cordial relationsrndefined their bilateral relations during the initial years of Eritreaâ€™s independence. However,rnthe border conflict of 1998 caused not only economic and political problems for themselvesrnbut also for the whole region of Horn of Africa .Not only that, the post-Algiers relations have continued to be characterized by a serious of economic and political problems. This thesis is concerned with the study of the post-Algiers Ethio-Eritrean relations with its major problems and prospects. To this end, the study aims at describing and analyzing the extent to which Ethio-Eritrean bilateral relations have been underpinned by political and economic problemsrnsince the aftermath of Algiers peace treaty. Along this line some research questions revolving around the major economic and political problems of the two countries as a result of theconflict and the stalled relation have been posed. Accordingly, data have been collected both from primary and secondary sources of information. The primary sources of information were collected through a series of semi-structured interviews with key informants. Apart from this, secondary sources of information were also collected from old and recent publications.rnAgain, information from day to day news from different Medias was also used in the finalrnanalysis of the study.rnThe study concludes that, because of the border conflict and the stalled relation, the tworncountries are facing great economic and political problems. Economically, the conflict andrnthe stalled relation between the two countries have not only disrupted their past economicrninterdependence but also resulted in a serious economic problem for both countries. Eritrearnlost both its industrial raw materials and market place for its manufactured products, and isrnfacing great economic hardship today. Ethiopia on the other hand has also lost its past freernaccess to the port of Assab and is now compelled to pay a huge amount of money for Djiboutirnport services. Politically, the study concludes that the post-Algiers stalled relation betweenrnthe two countries has disrupted the prevalence of peace and stability in the region and bothrncountries as well. Both have engaged in destabilizing actions of the other through thernprovision of support to the opposition forces of their respective countries in order to weaken the other by way of waging proxy wars. Finally, the study also concludes that as a result of the persistence of the two countries destabilization action of the other, added to the new stance Ethiopia adopted recently against the regime in Eritrea, there will be a probability of future open war between the two countries.