Following the execution of former Iraqi dictator Saddam Hussein, almost four years after the U.S.-led invasion and occupation of Iraq, the Middle East stands at a crossroads.

The execution of Saddam may well create more problems than it could possibly solve. Despite the formation of a permanent national government, Iraq has been reduced to a state of chaos and sectarian violence.

The execution is unlikely to bring stability to the country, or credibility to the government. That is after the situation in the country hit an all-time low this year.

The security situation took a dramatic turn for the worse in February, when the bombing of a Shia religious shrine by unknown perpetrators in the city of Samarra triggered a wave of sectarian violence that has continued to rage unabated. The formation of a permanent government in May -- after months of sectarian wrangling between Sunni, Shia and Kurdish groups -- did little to stop the bloodletting.

These dismal circumstances continued on throughout the year, which saw hundreds of thousands of Sunnis and Shias fleeing their homes to traditional ethnic heartlands in the middle and south of the country respectively. While insurgent attacks on U.S.-led coalition troops waxed and waned, tit-for-tat sectarian killings only increased in number and intensity.

According to accounts by humanitarian agencies, roughly 1.6 million Iraqis have been displaced -- mostly as a result of confessional violence -- since the 2003 U.S.-led invasion. By the end of 2006, daily civilian death tolls in both Sunni and Shia areas had reached unprecedented levels, prompting many observers to describe the conflict as a full-fledged civil war.

Although the Cairo-based Arab League continues to host regular 'Iraq reconciliation' conferences in hopes of stopping the bloodshed, the prospects for peaceful settlement in the short term appear more distant than ever. By late December, embattled U.S. President George W. Bush was openly considering the deployment of an additional 20,000 troops to join the 141,000 currently stationed in the war-torn country.

And the death of Saddam Hussein after a process that left many unconvinced about its legality and independence, can inflame the situation in an already tense Middle East.

The situation in the occupied Palestinian territories -- facing international sanctions, longstanding conflict with Israel and internecine fighting -- has never been worse. Lebanon hovers on the brink of civil war, pitting an empowered Shia-led opposition bloc against the leadership in Beirut.

Meanwhile, key U.S. allies in the region Egypt, Saudi Arabia and Jordan maintained their time-honoured closeness to Washington, despite popular misgivings about U.S. policies. As for Syria and Persian Iran, the two so-called 'rogue states' have remained under enormous international pressure led by the United States, which continues to play up the threat of a regional Shia axis.

Despite a degree of optimism following a 2005 summit between Palestinian and Israeli leaders, the perennial Middle East conflict showed little sign of letting up this year, which began with the victory of Islamist party Hamas in Palestinian parliamentary elections.

Since its formation in March, however, the Hamas-led government has been subject to crushing international sanctions due to its refusal to recognise Israel in the absence of reciprocal concessions. Now in its tenth month, the U.S. and EU led embargo has devastated the Palestinian economy and badly hindered the ability of the government to pay salaries.

As the year drew to a close, the government, headed by Prime Minister Ismail Haniya, launched talks with the rival Fatah party in hopes of forging a unity government more palatable to Israel's sanction-wielding patrons. By mid-December, however, talks had broken down, with each side blaming the other for the impasse.

Calls by Fatah-affiliated Palestinian President Mahmoud Abbas on Dec. 18 for fresh parliamentary elections further alienated Hamas, which had been the clear-cut winner in January races. The dispute quickly erupted into open violence, with a series of tit-for-tat killings in late December -- mostly by unknown assailants -- prompting open speculation that inter-Palestinian civil war was round the corner.

The situation is no less dire on the Israel-Palestine front. Following five months of Israeli military incursions in the Gaza Strip in which hundreds of Palestinians were killed, a shaky truce was finally declared in late November. Nevertheless, hostilities remain an almost daily occurrence, with Tel Aviv maintaining its policy of "targeted killings" against wanted militants while armed Palestinian groups fire home-made Qassam missiles at Israeli targets from the Gaza Strip.

By the year end, attempts to broker a prisoner swap between the antagonists, involving the exchange of several hundred Palestinian prisoners for an Israeli corporal captured by militants in June, had come to nothing.

Middle Eastern capitals are no less distressed about the current state of affairs in Lebanon, where a full-scale war this summer rocked the regional balance of power.

Little more than a year after the Syrian military withdrawal from the country, open war broke out between Israel and the Shia guerilla group Hezbollah after the latter's capture of two Israeli soldiers in mid-July. As the conflict escalated, with both sides trading missile barrages on an almost daily basis, the international community -- with the notable exception of the United States and Britain -- called for an immediate cessation of hostilities.

By the time a UN-backed ceasefire finally came into effect in mid-August, more than 1,400 people had been killed, the majority of them Lebanese civilians. Much of southern Lebanon, meanwhile, was in ruins as a result of ferocious Israeli bombardments.

Despite the imposition of a truce, Tel Aviv maintained a naval blockade of Lebanon until early September. Shortly afterwards, UN peacekeepers were deployed along the country's volatile southern border, in accordance with UN Security Council Resolution 1701 (which also stipulated the eventual disarmament of Hezbollah).

The conflict served to split Lebanese public opinion, already deeply divided since the 2005 assassination of former Lebanese prime minister Rafik al-Hariri. Despite repeated protestations of innocence from Damascus, the Beirut government was quick to blame Syria, a primary backer of Hezbollah, for the murder.

Battle lines were quickly drawn, pitting Saad Hariri, son of the late prime minister, against the Hezbollah-led opposition. In early December, flush with confidence after its unexpected show of military prowess, Hezbollah and its Christian allies launched a series of popular demonstrations against the U.S.-backed Beirut government.

With crowds reportedly numbering in the hundreds of thousands swarming the capital, the Hezbollah-led opposition has vowed to keep the pressure on until the government meets their demands for greater political representation. Contentiously, Hezbollah leader Hasan Nasrallah has also accused the Beirut government of colluding with Israel in the recent war.

Mediation efforts are being led by Arab League Secretary-General Amr Moussa, who has called on both sides to negotiate a power-sharing arrangement. But as the year drew to a close, prospects of a mutually-acceptable agreement appeared increasingly remote.

In Egypt, the most populous Arab country, 2006 saw the emergence an empowered Islamist opposition controlling one-fifth of parliament after unexpected victories in 2005 parliamentary elections. Nevertheless, the ruling National Democratic Party headed by longtime President Hosni Mubarak maintained more than the two-thirds majority necessary to control legislation.

Pervasive reports of electoral fraud during the parliamentary races also triggered a concerted push by the judicial branch of government to achieve greater political independence. Following the call of a handful of outspoken pro-reform judges, opposition protestors took to the streets in May to demand electoral reform and judicial independence from an authoritarian executive.

Despite continued opposition campaigning, however, an unpopular Judicial Authority Law was pushed through the People's Assembly in June. Critics say the new law will serve to keep the judiciary under the firm control of the executive branch and restrict judicial supervision over future elections.

In April, triple bomb attacks in the Red Sea resort town of Dahab, which killed 18 people, including five foreign tourists, again raised the specter of domestic terrorism. While government sources ultimately attributed the attacks to a shadowy Islamic group known as Al-Tawhid Wal-Jihad, official information about the group remains sparse.

Days after the bombings, the government officially extended the duration of the emergency law -- in place since the assassination of former president Anwar Sadat in 1981 -- for another two years.

Despite pledges by Mubarak to make 2007 "the year of constitutional reform", most opposition figures fear that promised reforms will amount to little more than window dressing. Some commentators have further suggested that proposed constitutional changes are simply cover for behind-the-scenes political machinations aimed at the eventual ascension of Gamal Mubarak, the president's 43 year-old son, to the presidency.

The geopolitical standing of Syria, a primary supporter of Hezbollah, was bolstered by the Shia militia's strong military showing in its summer war with Israel. Nevertheless, Damascus continues to face enormous international pressure led by Washington, which accuses Syria of standing behind the 2005 Hariri assassination in Lebanon.

In an effort to cooperate, Damascus established diplomatic relations with the pro-U.S. government in Baghdad in December (ending an era of mutual boycott dating from the 1980s) and agreed to joint security arrangements along its 600 km shared border with Iraq. Pressing its advantage, Syria has also expressed its readiness to negotiate the issue of the Golan Heights captured by Israel in 1967 with Tel Aviv.

December also saw the release of the much-trumpeted Baker-Hamilton report in the U.S., which counseled greater diplomatic engagement with Damascus. If Syria hopes to realign its diplomatic orientation towards dialogue with Washington, however, it will have to distance itself from its ally Iran, currently facing UN Security Council-imposed sanctions for refusing to suspend its nuclear programme.

The states of the Gulf, meanwhile, maintained their gradualist approach to democracy, holding a handful of modest but significant elections this year.

In June Kuwaiti women voted for the first time in parliamentary elections. Although major gains were made by Islamist-oriented reformists, female candidates failed to win any seats, despite the fact that women represented a reported 57 percent of the electorate.

In September, incumbent Yemeni President Ali Abdullah Saleh, who has ruled the country since its reunification in 1990, handily defeated his opponent from an opposition coalition. Municipal elections held the same day were marred by violence, however, including the killing of an opposition candidate.

December, finally, saw two more elections in the Gulf: national assembly races in Bahrain and first-ever elections for one half of an advisory council in the United Arab Emirates, all of whose members had previously been appointed.