Analysis
By Sushil Sharma BBC correspondent in Kathmandu

A traumatic year has passed since Nepal witnessed one of its worst tragedies in recent history.

The Maoist insurgency took advantage... to spread its wings across the country

Things have not been the same for the Himalayan kingdom after King Birendra, Queen Aishwarya and eight other members of the royal family were killed.

The palace massacre was blamed on Crown Prince Dipendra, who shot his relatives before killing himself.

Things have gone from bad to worse since that fateful night on 1 June, 2001. But signs of revival have also begun to emerge.

Once far-off insurgency is now felt in Kathmandu

The palace massacre was seen as a major blow to Nepal's future, as it threatened to tarnish the traditional image of the monarchy as a symbol of national unity in the multi-ethnic kingdom.

It also cast a shadow on the credibility of an institution that has endured many challenges over the years in maintaining the independence of the small country, sandwiched between the world's two most populous nuclear rivals, India and China.

Economy 'bleeding'

The tragedy rubbed salt on the wounds inflicted by a long-running leftist insurgency aimed at toppling the monarchy and establishing a communist state.

Civil war is hitting rural areas hard

Predictably enough, the Maoist insurgency took advantage of the resultant political confusion and the sense of uncertainty to spread its wings across the country.

As the security forces and the rebels fought more frequently, the body count mounted and the economy bled.

Increases in security spending, a fall in key exports such as carpets and garments and the setback to the vital tourism industry took a heavy toll on the country's largely subsistence economy.

'Resilient' Nepal

But as Nepal has struggled to recover from the shock of the palace massacre and its aftermath, there are many signs of hope for the future.

King Gyanendra has won the trust of many

The country has overcome the odds to defy predictions of an imminent collapse.

Despite the unprecedented circumstances, the change of guard in the most revered institution, the Crown, went off without major disturbance.

This, many say, is reflective of the resilient character of Nepali society.

The new King, Gyanendra, has played by the rules as a constitutional monarch in winning back the confidence of the people.

The real challenge ahead is to tackle the Maoist insurgency, in which 4,000 people have died over the past six years.

Army unleashed

And there are already some positive signs.

Once the Maoists are tackled, Nepal should soon be on the road to recovering its lost glory

Just months after he ascended the throne, King Gyanendra authorised the deployment of the better-trained and equipped military to fight the Maoists.

It was the first time in six years of civil war that the military had been deployed.

The rebels had until then had little difficulty in over-running the poorly-trained and equipped civil police.

Signs of hope

Also for the first time, international donors, including the United States, Britain and neighbouring India, have pledged economic and military assistance to crush the rebels, whom the authorities have branded terrorists.

PM Deuba: Foreign backing

Such a pledge followed the launch of a global anti-terrorism campaign in the wake of last September's attacks in the US.

There are indications that the government is gaining the upper hand in the fight against the rebels.

Once the Maoist insurgency is tackled, Nepal should soon be on the road to recovering its lost glory and Shangri-la image.

It has abundant natural resources, such as water, and huge tourism potential waiting to be tapped.

Things may have gone from bad to worse in the aftermath of the palace massacre - but having overcome the shock, Nepal can now hope to leave the bitter past behind and look forward to a better future.