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Treaty of Portsmouth

Military leaders and senior tsarist officials agreed before the war that Russia was a much stronger nation and had little to fear from the Empire of Japan. The fanatical zeal of the Japanese infantrymen astonished the Russians, who were dismayed by the apathy, backwardness, and defeatism of their own soldiers. The defeats of the Army and Navy shook Russian confidence. Throughout 1905, the Imperial Russian government was rocked by revolution. The population was against escalation of the war. The empire was certainly capable of sending more troops, but this would make little difference in the outcome due to the poor state of the economy, the embarrassing defeats of the Russian Army and Navy by the Japanese, and the relative unimportance to Russia of the disputed land, which made the war extremely unpopular. Tsar Nicholas II elected to negotiate peace so he could concentrate on internal matters after the disaster of Bloody Sunday on 9 January 1905.

Both sides accepted the offer of United States President Theodore Roosevelt to mediate. Meetings were held in Portsmouth, New Hampshire, with Sergei Witte leading the Russian delegation and Baron Komura leading the Japanese delegation. The Treaty of Portsmouth was signed on 5 September 1905 at the Portsmouth Naval Shipyard. Witte became Russian Prime Minister the same year.

After courting the Japanese, Roosevelt decided to support the Tsar's refusal to pay indemnities, a move that policymakers in Tokyo interpreted as signifying that the United States had more than a passing interest in Asian affairs. Russia recognized Korea as part of the Japanese sphere of influence and agreed to evacuate Manchuria. Japan would annex Korea in 1910 (Japan–Korea Treaty of 1910), with scant protest from other powers. From 1910 until the end of its occupation of Korea in 1945, the Japanese adopted a strategy of using the Korean Peninsula as a gateway to the Asian continent and making Korea's economy subordinate to Japanese economic interests.

Russia also signed over its 25-year leasehold rights to Port Arthur, including the naval base and the peninsula around it, and ceded the southern half of Sakhalin Island to Japan. Sakhalin would be taken back by the Soviet Union following the defeat of the Japanese in World War II.

Roosevelt earned the Nobel Peace Prize for his effort. George E. Mowry concludes that Roosevelt handled the arbitration well, doing an "excellent job of balancing Russian and Japanese power in the Orient, where the supremacy of either constituted a threat to growing America". As Japan had won every battle on land and sea and as the Japanese people did not understand that the costs of the war had pushed their nation to the verge of bankruptcy, the Japanese public was enraged by the Treaty of Portsmouth as many Japanese had expected the war to end with Russia ceding the Russian Far East to Japan and for Russia to pay an indemnity. The United States was widely blamed in Japan for the Treaty of Portsmouth with Roosevelt having allegedly "cheated" Japan out of its rightful claims at the peace conference. On 5 September 1905 the Hibiya incendiary incident – as the anti-American riots were euphemistically described – erupted in Tokyo and lasted for three days, forcing the government to declare martial law.

The Treaty of Portsmouth overlooked Montenegro's participation in the war against Japan, leaving the two countries still technically belligerents until 2006, when the Japanese prime minister dispatched the Vice-Minister of Foreign affairs (Akiko Yamanaka) with a personal letter from him for the Prime Minister of Montenegro formally ending the war.