Lebanon concluded negotiations on an association agreement with the European Union in late 2001, and both sides initialed the accord in January 2002. Lebanon also has bilateral trade agreements with several Arab states and is working toward accession to the World Trade Organization. Lebanon enjoys good relations with virtually all of its Arab neighbors (despite historic tensions with Libya, the Palestinians, and Iraq), and hosted an Arab League Summit in March 2002 for the first time in more than 35 years. Lebanon also is a member of the Organization of Islamic Conference and maintains a close relationship with Iran, largely centered on Shi'a Muslim links. Lebanon is a member of the Francophone countries and hosted the Francophone Summit in October 2002.

Lebanon did not participate in the 1967 or 1973 Arab-Israeli war or in the 1991 Gulf War. The success of the latter created new opportunities for Middle East peacemaking. In October 1991, under the sponsorship of the United States and the then-Soviet Union, Middle East peace talks were held in Madrid, Spain, where Israel and a majority of its Arab neighbors conducted direct bilateral negotiations to seek a just, lasting, and comprehensive peace based on UN Security Council Resolutions 242 and 338 (and 425 on Lebanon) and the concept of "land for peace." Lebanon, Jordan, Syria, and representatives of the Palestinians continued negotiating until the Oslo interim peace accords were concluded between Israel and the Palestinians in September 1993 and Jordan and Israel signed an agreement in October 1994. In March 1996, Syria and Israel held another round of Madrid talks; the Lebanon track did not convene.

In early April 1996, Israel conducted a military operation dubbed "Grapes of Wrath" in response to Hizballah's continued launching of rockets at villages in northern Israel. The 16-day operation caused hundreds of thousands of civilians in south Lebanon to flee their homes. On April 18, Hizballah fired mortars at an Israeli military unit from a position near the UN compound at Qana, and the Israeli Army responded with artillery fire. Several Israeli shells struck the compound, killing 102 civilians sheltered there. In the "April Understanding" concluded on April 26, Israel and Hizballah committed themselves to avoid targeting civilians and using populated areas to launch attacks. The Israel-Lebanon Monitoring Group (ILMG), co-chaired by France and the United States, with Syria, Lebanon, and Israel all represented, was set up to implement the Understanding and assess reports of violations. ILMG ceased operations following the May 2000 Israeli withdrawal from south Lebanon.

On May 23, 2000, the Israeli military carried out a total withdrawal of Israeli troops from the south and the Bekaa Valley, effectively ending 22 years of occupation. The SLA collapsed and about 6,000 SLA members and their families fled the country, although more than 3,000 had returned by November 2003. The military court tried all of the SLA operatives who remained in the country and the average sentence handed down was 1-year imprisonment.

On June 16, 2000, the UN Security Council adopted the report of the Secretary General verifying Israeli compliance with UN Security Council Resolution 425 and the withdrawal of Israeli troops to their side of the demarcated Lebanese-Israeli line of separation (the "Blue Line") mapped out by UN cartographers. (The international border between Lebanon and Israel is still to be determined in the framework of a peace agreement.) In August 2000, the Government of Lebanon deployed over 1,000 police and soldiers to the former security zone, but Hizballah also maintained observation posts and conducted patrols along the Blue Line. While Lebanon and Syria initially agreed to respect the Blue Line, both since have registered objections and continue to argue that Israel has not fully withdrawn from Lebanese soil. As regional tension escalated with the Palestinian intifada in September 2000, Hizballah cited Blue Line discrepancies when it reengaged Israel on October 7, taking three Israeli soldiers captive in an area known as Sheba Farms. (In 2001, the Israeli Government declared the three soldiers were believed to be dead.) Sheba Farms is a largely unpopulated area of the Golan Heights, just south of the Blue Line, that was captured by Israel from Syria in 1967. As a result of secret mediation by the German Government, Israel released a number of Lebanese prisoners held by Israel in early 2004 in exchange for Elhanan Tannenbaum, an Israeli reservist abducted by Hizballah in late 2000.

Hizballah forces have continued to launch sporadic military strikes on Israeli forces, drawing responses that produced casualties on both sides and, on two occasions in 2001, Israeli air strikes on Syrian radar sites in Lebanon. Israel continues to violate Lebanese sovereignty by conducting many overflights of Lebanese territory north of the Blue Line. UNIFIL has recorded numerous violations of the Blue Line by both sides since the Israeli withdrawal. In general, however, the level of violence along the Israeli-Lebanon front has decreased dramatically since May 2000.