The objective of this thesis was to examine, on a case study basis, dominant patterns ofrnnon-farm rural di versifi cation and identify and analyze the key constraints andrnopportuniti es as well as the determinants and principal motivations behind non-farmrndi versi fication.rnA blend of qualitative and quantitative methods was used where structured householdrnquestionnaire survey, quali tative investigation and part icipatory assessment wasrncombined with a review of previous researches on the subj ect at local and developingrncountries level.rnGenerally, the study showed that rural households in the study Kebeles have divers ifiedrnJl1comes, engage in diversified activities, and non-farm li vel ihood diversification isrnimportant.rnThe results indicated that diversification into 10w-entry-batTi er, low-retum actIVItIesrnpredominate. Diversification into high value, high return activities are virtually absent.rnMicro-enterprise based di versification, while generally limited, is dominated by pettytradernand household-level small-scale activities. Manufacturing comprises a negli gib lernpart of all non-farm activities.rnLack of access to su ffi cient fixed and working capital is a maj or constraint to undertakernhigh-return non-farm activities. Poor infrastructure, especially lack of electricity, is alsornfound to constrain diversification. Diversification among the ' farm-ri ch' was found to bernvery uncommon. The greatest extent of diversification was amongst the ' poor' andrn'medium ' inhabitants. Although tenural security is hard ly a problem, diversification inrnthe study sites is to a great ex tent associated with negative circumstances related tornlandl essness, especially among the youth.rnThe results also indicated that diversification is significantly influenced by householdrnhead education and age. Other household characteristics, though positively or negativelyrnassociated with diversification, are not found to sign ificantly influence diversification.rnThis study has also confil1l1ed the empirical findings of many other studies that anrnincrease in income diversification leads to a rise in total income.rnThe impact of proximity to urban center on diversification is fou nd to be negative.rnlnstitutional ownership of the non-fatm economy lacks wh ile proclamations andrnregulations on land use and investment gloss over non-faml activities. Di versificationrnamong the poor is enhanced by access to natural reso urces as evidenced by sign ificantrnparticipation of unemployed and landless persons in river sand and stone quatrying asrnwell as pottery in the study sites.