One set of challenges arises from globalisation and the changing global world order. The last four years have seen a precipitous decline in the United States' (US) global standing, arising from the blunders of the Bush Administration, especially over Iraq. The US is still the global hegemon, but its position is no longer uncontested.

We are not yet in the era of bipolarity with a challenger for global supremacy, as was the case at the height of the Cold War; nor are we in an era of multi-polarity with contending power blocs. Rather, we have a wounded superpower, espying threats to its security from Islamic militancy and resurgent Arab nationalism, and fearing that the long-term rise of China and other Asian powers will lead to its eclipse within a generation.

This is a potentially dangerous tilt in world affairs. Africa is one domain in which China is racing ahead of Europe and the US in building its influence, investing commercially and diplomatically with the immediate aim of gaining access to Africa's natural resources, but also seeking to build up a bloc of allies at the United Nations (UN). Europe and the US have no challenge to this at the present time.

The Horn of Africa is a theatre which the US sees as a frontline in the 'global war on terror', and where it will continue to invest intelligence and military resources in order to try to challenge any competitor for its prime influence. But, America has yet to build a workable strategy that will not antagonise the Muslims who are suspicious of US's motives for how to pursue its interests in this, one of the most unstable regions of the world.

In the circumstances of instability and poverty, it is tempting for any government to build a single set of alliances, buying into the agendas of others. I believe Ethiopia is unlikely to fall into this trap, with its history of diplomatic balancing. Nonetheless, there is a danger of over-reliance on American military cooperation which could leave the country vulnerable to bending before the agendas of others. This has not happened yet, and I am confident that the government is aware of the dangers, but they could creep-up unsuspected.

The growth of non-state actors and the diffusion of power is another aspect to globalisation. Foreign policy needs to take more account of soft power - the importance of the influence exercised by the media, cultural initiatives and interest groups. Identity politics, which are resurgent across the globe, is a strong influence on the shape of Ethiopia's national interest.

The recent Millennium is a fine example of how Ethiopia succeeded in capitalising on one element of our unique cultural heritage - our calendar - and turning it both into a national celebration and an advertisement to the world. That should be seen as a success but also as only a beginning. There is considerable soft power in the trappings of our civilisation - the events and artefacts that attract tourists and display artistry.

There is even more in the powerful socio-cultural example provided by Ethiopians' tradition of managing our multiple identities. I have written about this vital but often neglected element in our history and society. Nevertheless, the core of the case is that our country has succeeded over centuries in achieving the peaceful coexistence of different faiths and ethnic identities, such that none of them is absolutist or exclusivist.

Ethiopia is the product of both mixing and coexistence, a celebration of diversity. In a world in which identity labels are becoming fixed, and the source of ideologies of exclusion and conflict, Ethiopia should not only draw on its traditions to ensure that we are tolerant and inclusive at home, but should use this as an asset in how we display our national identity towards the rest of the world and more importantly here in the Horn of Africa.

An element of globalisation is the unusual nature of Diaspora politics. Throughout the developing world, Diasporas in rich countries have come to exercise an important influence back home - through remitting money, helping educate a young generation and often pushing particular political agendas.

It is common to see a generation of exiles in a faraway country adopting simplified, often outdated and fixed concepts of their homeland. In some cases, these Diasporas support exclusivist or violent political agendas as a result. In extreme cases, they become a hotbed of reactionary ferment, terrorist recruitment, or ethnic and political hatred. The Cubans in Miami are a case in point. Diaspora support for Sikh terrorists and Tamil Tigers are other examples.

Elements within the Ethiopian Diaspora are in danger of going down this path resulting in a situation in which they care more about supporting their cause than the future of their country.

Dealing with lobbies is becoming important alongside dealing with governments. Soft power is important when responding to the challenges and opportunities of lobbies. Ethiopia needs to understand the nature of civic activism, especially in the US where it is closely connected to Congress and celebrities. The Diaspora is influential here, but equally important are the specialist advocacy groups that engage in public diplomacy around issues of peace and security.

Their immediate ancestors are the human rights organisations such as Amnesty International and Human Rights Watch - whose work is very valuable but occasionally strays. But the new breed of advocacy organisations, like International Crisis Group, is openly political and demands a sophisticated response from governments. Countries like Ethiopia are outnumbered and out-resourced by these groups, and often our public relations efforts appear as clumsy attempts at denial or cover-up. There is a tendency for official statements to be bland, not admit any mistakes, and accuse our critics of malice and conspiracy. This does not convince world public opinion.

The Ethiopian government should consider supporting its own independent foreign policy research and advocacy groups that can provide facts and sophisticated analysis - on the basis of being well-informed and committed to presenting all sides of any case. If such a group has good access to senior levels of government, it will be automatically better informed than any other, and will immediately gain credibility on the basis of its information.

Vital, however, is independence; it must be able to make constructive criticisms of government policy and be frank when things have not gone right.

In this regard, one valuable step - if not already done - that could be taken would be to consult regularly with the legion of retired Ethiopian diplomats, drawing upon their collective decades of expertise to advise on the principles and directions of foreign policy.

Closer to home, Ethiopia faces some extremely tough challenges in our own backyard. The immediate neighbourhood of the Horn of Africa is extremely tricky, demanding close attention. Historically, Ethiopia's concern has been with countering the threat encirclement, ensuring the integrity of our borders, ensuring access to the sea, and an age-old rivalry with Egypt for control of the Nile waters. These are all still valid concerns, and each of them needs new approaches for new challenges.

Sudan is Ethiopia's biggest and most influential neighbour. The hopes of peace and stability brought about by the 2005 Comprehensive Peace Agreement (CPA) between North and South are looking shaky. Achieving peace and security in Darfur and stabilising Sudan as a whole remain uncompleted business.

Ethiopia has offered a large troop contingent to the hybrid UN-African Union (AU) force in Darfur and that is very welcome. But its diplomatic efforts on Sudan must be visibly energised. Ethiopia's discreet support of the North-South negotiations and its balanced policy towards the Khartoum government and the Southern rebels was essential to the success of the peace negotiations. But it demands vigorous follow-up engagement.

The unity of the Sudan is in our strategic interest, and Ethiopia is better able than anyone else to articulate the case for a balanced federal system that guarantees the rights of Sudan's historically aggrieved peoples.

Ethiopia has a vital role to play in Sudan. In the medium-term, Sudan is our most natural trading partner and there is a huge amount to be gained from bilateral economic relations. In the shorter term, Ethiopia can be the most important regional guarantor of Sudan's political stability. For example, Ethiopia is a trusted neighbour that can assist in putting the CPA back on track and even more importantly, help to re-establish confidence between the leadership in Khartoum and Juba.

Somalia is an immediate challenge. For many years we managed the problems that arose from having a collapsed state on our eastern flank. This was not easy; it involved careful diplomacy (balancing good relations with Somaliland and continuing efforts to establish a central government in Mogadishu) and occasional military intervention to eliminate immediate security threats and shore up allies. It is not getting any easier. It is not sustainable for the Ethiopian army to remain in Somalia indefinitely - not least because as time passes it will poison domestic politics and create discord and tension.

But there is no realistic expectation that Somalia will establish a functioning government anytime soon.

Ethiopia's association with Somalia should be with the entire population, rather than with just one political entity. Somali politics never remain constant for any period of time. Alignments will change. Openness to all should be the cornerstone of our policy.

The Ethio-Eritrea relationship is a tragedy. Everything that could go wrong has. A great opportunity that existed in the aftermath of the fall of the Derg in 1991 has been squandered. We are left with our most pressing peace and security concern, which affects not just our bilateral relations and defence policy, but also our relations with all our other neighbours.

Eritrea has been the major preoccupation of successive governments. It is part of our common civilisation and heritage. Even with independence in 1993, our problems with Eritrea were not resolved.

I believe that no military solution to the standoff between Ethiopia and Eritrea is possible. The people of these two countries have endured so much. In spite of our modern histories that have involved so many missteps, essentially we are the same people, divided by recent events.

We must be prepared to think in creative and unconventional ways. Our people are historically minded and everything is interlinked. The essence of our current conflict is not the border. Much more is involved. To reduce the Ethiopian and Eritrean revolutions to a border quarrel is to trivialise the issues that led tens of thousands of young people to sacrifice their lives. The 1998 War was not just about a border. The border is a symptom of a much deeper and more complicated entanglement.

The current breakdown of relations with Eritrea cannot continue forever. Ethiopia's policy of patience and restraint has paid-off insofar as it has allowed for Ethiopia to normalise its relations with the rest of the world, restore its good standing and resume a measure of normality. The contrast with Eritrea's meltdown is striking. This strategy of using hard power selectively and with restraint has worked. What has not been tried is deploying Ethiopia's soft power.

Ethiopia has big reserves of soft power. In the context of the Millennium, our social and cultural resources are clearer than ever. The Eritrean government unfortunately changed their calendar to the Gregorian to distance itself from our common heritage. We should welcome them back.

I suggest that we move away from the zero-sum thinking that demands that every inch of land belongs in perpetuity to one nation or another. Badme should be turned into a memorial cemetery for the tens of thousands who died fighting from both sides. But it could also become a memorial peace park for the Horn of Africa. Hopefully, the people affected in the area will agree to this.

Our error of the last 10 years I would argue was the expulsion of Ethiopians of Eritrean ancestry, beyond those who posed or had posed a security threat, during the heat of the war. This inflicted a loss on Ethiopian society and culture, dealing a blow to our reputation for tolerance and diversity. As the 10th anniversary of the expulsions nears, we should do all in our power to remedy this misstep. Ethiopian or Eritrean ancestries who were expelled from this country must be given the right to return. They are part of us and part of our social capital.

This is an exercise in soft power and they long to be back home in Addis Abeba. I met them here in Khartoum as refugees; they are nostalgic about Ethiopia. Starting with religious leaders and youth, we should initiate people-to-people contact. This should go ahead regardless. This will allow us to once again embrace each other as people with shared heritage.

This stalemate has proved the uselessness of Assab without Ethiopia. I hope that Eritreans will agree to the lease of Assab to Ethiopia as a gesture for sustainable neighbourliness.

The Global War on Terror poses special challenges for Ethiopia. Our country has been the victim of terrorist attacks and is still vulnerable to them. In the 1990s, the threat was dealt with by our own domestic strategy - including the selective use of military force - without external assistance or guidance. We should consider that recent successful exercise as we ponder the assistance and cooperation offered by the US - that help comes at a price.

Even though Ethiopia jealously guards its independence of policymaking, it must ensure that it is seen to be acting in its own self-interest and not following the agendas of others. Even the perception of bending before an American agenda will discredit our efforts and foment discontent, most worryingly, creating tensions between Muslims and Christians.

As with domestic politics, foreign policy is not a zero-sum game. Peace and security are good for everyone. But every policy position or initiative demands a measure of compromise. Ethiopian diplomacy has historically proved exceptionally skilled at identifying those compromises and building those win-win coalitions. We need to accelerate that spirit of creativity.

We need to build a consensus on Ethiopia's foreign policy goals and strategies. Without broad popular support within the country, no policy can be truly effective.

Ethiopia carries the strategic burden of stability in the Horn of Africa region. When Ethiopia is stable with constructive policies towards its neighbours, there is at least the promise of peace and security in the Horn. When Ethiopia is in crisis, or not playing its  expected role as the hub of stability, then stability cannot be achieved. Our foreign policy is therefore an essential part of our progress as a nation. It demands careful deliberation and public engagement.

We should carefully consider our alliances. We should engage in public diplomacy and exploit our soft power. We should take the initiative to unlock the problems of the region and to stabilise those countries - such as Sudan - where there is progress but it is in jeopardy.

As part of this Millennium's soft power strategy, we should take two highly visible initiatives. One is, given the Muslim-Christian harmony and cohabitation that Ethiopia possesses, we should call a major conference on the history of Islam and Christianity in the Horn and chart directions for the future. This should be not only a model for coexistence and progress throughout the region, but also a charter for a new social compact for our country, so that we avoid the perils of religious conflict; instead we embrace our common civilisation values.

The second initiative is to reinvigorate peace and security in the Horn, bringing in all stakeholders. We need to raise our eyes from our immediate difficulties and see the big picture. We in the Horn of Africa have lost the habit of pursuing grand visions and instead we have become focused on pursuing vendettas, recycling the past, and dealing with the small change of politics.

I come from a generation of revolutionaries, now disillusioned and exhausted because the limits of our ambitions for change were reached. Instead, the grand vision of the coming decades should be stability - a stability in which our civilization values can thrive, our people can pursue their dreams of social, cultural and economic progress, and we can achieve the goals of delivering food security, health and education for all.

None of this is possible without peace and security, and hence a compact for stability be Ethiopia's urgent goal in the Horn of Africa.