Later, as the Egyptians retreated out of Sudan during the Mahdist rebellion, the British brokered an agreement whereby the Egyptians could retreat through Ethiopia, and in exchange they would allow the Emperor to occupy those lowland districts that he had disputed with the Turks and Egyptians.
Catholic Cathedral of Asmara, built by the Italians in 1922
Emperor Yohannes IV believed this included Massawa, but instead, the port was handed by the Egyptians and the British to the Italians, who united it with the already colonised port of Asseb to form a coastal Italian possession. The Italians took advantage of disorder in northern Ethiopia following the death of Emperor Yohannes IV in 1889 to occupy the highlands and established their new colony, henceforth known as Eritrea, and received recognition from Menelik II, Ethiopia's new Emperor.
The Italian possession of maritime areas previously claimed by Abyssinia/Ethiopia was formalized in 1889 with the signing of the Treaty of Wuchale with Emperor Menelik II of Ethiopia (r. 1889–1913) after the defeat of Italy by Ethiopia at the battle of Adua where Italy launched an effort to expand its possessions from Eritrea into the more fertile Abyssinian hinterland. Menelik would later renounce the Wuchale Treaty as he had been tricked by the translators to agree to making the whole of Ethiopia into an Italian protectorate. However, he was forced by circumstance to live by the tenets of Italian sovereignty over Eritrea.
The Italians brought to Eritrea a huge development of Catholicism and by the 1940 nearly one third of the Eritrean population was catholic, mainly in Asmara where many churches were built.
Italian administration of Eritrea brought improvements in the medical and agricultural sectors of Eritrean society. Furthermore, the Italians employed many Eritreans in public service (in particular in the police and public works departments) and oversaw the provision of urban amenities in Asmara and Massawa. In a region marked by cultural, linguistic, and religious diversity, a succession of Italian governors maintained a notable degree of unity and public order. The Italians also built many major infrastructural projects in Eritrea, including the Asmara-Massawa Cableway and the Eritrean Railway.
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After the establishment of new transportation and communication methods in the country, the Italians also started to set up new factories, which in turn made due contribution in enhancing trade activities. The newly opened factories produced buttons, cooking oil, and pasta, construction materials, packing meat, tobacco, hide and other household commodities. In the year 1939, there were around 2,198 factories and most of the employees were Eritrean citizens, some even moved from the villages to work in the factories.The establishment of industries also made an increase in the number of both Italians and Eritreans residing in the cities. The number of Italians residing in the country increased from 4,600 to 75,000 in five years; and with the involvement of Eritreans in the industries, trade and fruit plantation was expanded across the nation, while some of the plantations were owned by Eritreans.
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Benito Mussolini's rise to power in Italy in 1922 brought profound changes to the colonial government in Eritrea. Mussolini established the Italian Empire in May 1936. The fascists imposed harsh rule that stressed the political and racial superiority of Italians. Eritreans were demoted to menial positions in the public sector in 1938.
Map of the Italian Empire (1936–1941), that included Eritrea, Somalia and Ethiopia
Eritrea was chosen by the Italian government to be the industrial center of the Italian East Africa.
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The Italian government continued to implement agricultural reforms but primarily on farms owned by Italian colonists. The Mussolini government regarded the colony as a strategic base for future aggrandizement and ruled accordingly, using Eritrea as a base to launch its 1935–1936 campaign to colonize Ethiopia.
The best Italian colonial troops were the Eritrean Ascari, as stated by Italian Marshall Rodolfo Graziani and officer Amedeo Guillet
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Asmara developmentAsmara was populated by a large Italian community and the city acquired an Italian architectural look. One of the first building was the Asmara President's Office: this former "Italian government's palace" was built in 1897 by Ferdinando Martini, the first Italian governor of Eritrea. The Italian government wanted to create in Asmara an impressive building, from where the Italian Governors could show the dedication of the Kingdom of Italy to the "colonia primogenita" (first daughter-colony) as was called Eritrea.
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Today Asmara is worldwide known for its early twentieth century Italian buildings, including the Art Deco Cinema Impero, "Cubist" Africa Pension, eclectic Orthodox Cathedral and former Opera House, the futurist Fiat Tagliero Building, neo-Romanesque Roman Catholic Cathedral, and the neoclassical Governor's Palace. The city is littered with Italian colonial villas and mansions. Most of central Asmara was built between 1935 and 1941, so effectively the Italians managed to build almost an entire city, in just six years.
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The city of Asmara had a population of 98,000, of which 53,000 were Italians according to the Italian census of 1939. This fact made Asmara the main "Italian town" of the Italian empire in Africa.In all Eritrea the Italian Eritreans were 75,000 in that year.
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Many industrial investments were done by the Italians in the area of Asmara and Massawa, but the beginning of World War II stopped the blossoming industrialization of Eritrea. When the British army conquered Eritrea from the Italians in spring 1941, most of the infrastructures and the industrial areas were extremely damaged.