The major objective of this empirical research is to identify and explain the level of regional development and analyse the challenges of policy implementation with special focus on Tigray and Gambella Regions from 1995 to 2015. In line with the research objectives and statement of the problem, this study was designed to determine the level of development of the two regional states, the critical factors of regional growth in the regions, and what the major challenges were in the implementation of regional development policy. This research was explanatory cross-sectional in its design. In this research, both primary and secondary sources were consulted. Key informant interview, document review and observation were used to collect the necessary information. Accordingly, based on their expertise knowledge, and the position they held, a total of 24 regional and federal key informants were purposively selected and interviewed. The findings of the study showed that both regions made remarkable improvements and changes in health, education, road network, agricultural and revenue collection performance. However, contrary to the perceptions of the respondents, the secondary data when divided by regional population showed that in the past 20 years Gambella has been better off in terms of health, education, road networks and some agricultural indicators than Tigray. Tigray, however, grew more in terms of infrastructure than Gambella during the same period. The study found that the Government regional development policy designed and implemented as measured by growth-oriented indicators brought encouraging results. The most important determinant factors for regional economic development between the two sampled regions were: initial historical level of development; capacity of resource utilisation; leadership commitment, cultural differences, recurrent conflicts and insecurity, governance issues, political will, capacity of the regional government authorities; and rent-seeking attitude of politicians and civil servants. To address some of the challenges, few recommendations are made: designing a regional specific development policy, strengthening intergovernmental relations, protecting the environment, ensuring good governance, maintaining peace and security, strengthening capacity building, supporting infrastructural development for Gambella and the provision of additional financial incentives to regions. / Development Studies / D. Litt. et Phil. (Development Studies)