quality:corruption
Foundation (1902–1936)

The present-day town of Dire Dawa (311 km by rail from Djibouti), however, is of very recent origin. It owes its foundation to a technical problem: when it became impossible to lay the Addis Ababa-Djibouti Railway via Harar because of the steep access to the town, Emperor Menelik II accepted (in a later dated 5 November 1896) that the first part of the line might finish at a village at the foot of the mountains, which should be named Addis Harar ("New Harrar"). The railway reached this location on 24 December 1902, a date which may be considered the day of Dire Dawa's foundation. The new name, however, did not win recognition.

For financial and diplomatic reasons the railway was not continued until 1909 and the final inauguration of the whole line from Djibouti to Addis Ababa-again delayed by the revolution of 1916-only took place on 7 June 1917. During all this time, Dire Dawa was practically the town profited much and became a "boom city", attracting most of the trade which formerly passed through Harar. By 1902 the Ethiopian government, anticipating the future economic importance of Dire Dawa, had already transferred the customs station for trade with the Red Sea from Gildessa to Dire Dawa.

Dire Dawa developed into two settlements separated by the Dechatu River, which was dry for most of the year and became a torrent only when it rained. The north-western part of the town was planned and constructed very regularly, mostly by the engineers of the railway company. At first, this part of the town mostly housed the employees of the railway company, but it later attracted, besides the French, also Greeks, Armenians, other Europeans and Arabs, who opened shops and hotels and founded some industry as well. In 1909 the French Capuchin Mission settled in Dire Dawa. At that time Dire Dawa looked like a French town. The other part of the town, southeast of the river, concentrated around the market and was inhabited mainly by Ethiopian, Somali and a few Arab traders.

In September 1916 the fleeing troops of Lij Iyasu took hold of the town. Though Lij Iyasu's governor there, the Syrian Hasib al-Idlibi, assured their security, 400 Europeans left the town and the rail traffic had to be suspended. After the battle of Maeso, the governmental troops from Addis Ababa re-established a regular administration.

During the 1920s, the south-eastern part of the town also started to develop. Its inhabitants were mostly Somali and Oromo, the other Ethiopians playing only a minor role. The population here grew to 3,000, while that of the whole town numbered 20,000. Between the two World Wars, two hospitals were established in Dire Dawa, one by the railway company and another in 1934 by the government. Education on a primary level was provided by a government school, a Catholic mission school and several schools for the different foreign communities in the town (Greek, Italian, Indian).

Dire Dawa's first governor was Ato Mersha Nahusenay. Formerly the governor of the strategic village of Gildessa and its environs, Mersha was instrumental in the construction of the first railway and establishment of the railway city. The imperial railway company (Cie) played a key role in the early development of the city, particularly Gezira (aka Kezira), under the authority of the Ethiopian government. The original failed company was reorganized as the joint-government Franco-Ethiopian Railway in 1908 and, after a period of financial negotiation and recapitalization, construction began anew, linking the city with the Ethiopian capital Addis Ababa in 1917. The Dire Dawa-Harar road was improved in 1928, shortening the travel time to only a few hours. In 1931, the Bank of Ethiopia opened its first branch in the city and, a generation later, the writer C.F. Rey described the city as the most "advanced" urban center in the area, with good roads, electric lights, and piped water.