This study claims that to develop water resources sustainably in areas facing water shortage an understanding of the factors leading to scarcity require an integrated, interdisciplinary and holistic approach. This hypothesis has been tested in the context of a water shortage crisis in the Yemeni city of Ta'iz (population 400,000) that peaked in 1995. The crisis was triggered by the demise of the main aquifer supplying the city. Numerical assessment of the aquifer's water resources permits an historical reconstruction of its degradation. The environmental cost of its demise, were irrigated agriculture to cease so that the aquifer could recover, is modelled. The returns to water from agriculture and industry are estimated in economic and livelihood provision terms, and contrasted. Sectoral contribution to water resource pollution is also contrasted. The area's dependence on grain imports is evaluated in terms of 'virtual water' (Allan, 1998). Adaptation to water shortage of individual households and water-related businesses is assessed quantitatively (through questionnaires) and that of political actors qualitatively through interviews. An assessment of the influence of the legal and institutional frameworks to the adaptive process utilises secondary data and interviews. These data and analysis suggest that the reality of water allocation in the Ta'iz area reflects politcal rather than economic factors, and economic rather than water resource criteria. The data are also used to examine critically the causes of the crisis in terms of political ecology and environmental reconstructionist models of sustainable development. An alternative model is proposed which incorporates economic progress, environmental protection and equity provision. Northern hydropolitical theory is found inadequate to encompass the allocative process of a Southern weak state (Migdal, 1988).