The Yugoslav occupation elicited violence against the majority Italian population and against noncommunist Slovenians, but an agreement brokered between the British and Tito's representatives on 8 August 1945 restored at least partial order. The former Italian territory now under Yugoslav control was divided into two areas by the Morgan Line. The British and Americans occupied the western zone comprising Trieste Harbor, and the Yugoslavs controlled the eastern territory, which contained important strategic natural resources such as mercury, bauxite, and coal.
Trieste straddled two worlds: the Eastern communist bloc and the Western democratic bloc. Certainly, the Soviet Union supported communist Yugoslavia's claims on the region. For their part, the Allies actually encouraged Tito in the sense that they assisted him economically and diplomatically following his 1948 break with the Soviet Union.
The Yugoslavs reinforced their troop presence in the area, and in 1951 the Italians deployed the first groups of former partisans in a covert stay-behind organization known as "O," which later would be integrated into the Gladio organization under the control of the Central Intelligence Agency (CIA) and the North Atlantic Treaty Organization (NATO).
In the Paris Peace Treaty signed on 10 February 1947 between Italy and the Allies, Yugoslavia secured the Istrian Peninsula, forcing some 250,000 Italians to abandon the area and find refuge in Italy. The Trieste area was designated a Free Territory under the administration of the United Nations (UN). Meanwhile, Yugoslavs killed perhaps 10,000 Italians in the foibe (karstic sinkholes), which were effective natural cemeteries.
Because neither Italy nor Yugoslavia could agree on a governor for Trieste, the area was divided into area "A" (from Duino to Trieste) and area "B" (Capodistria to Cittanova). On several occasions, the Italian population of Trieste protested against the Allied occupation, resulting in civilian fatalities when British troops overreacted to the demonstrations. At the same time, Yugoslavia continued to threaten the annexation of area "B."
According to some historians, the Italian government mounted covert paramilitary operations in Istria that were designed to discourage Yugoslavia's aspirations and plans regarding annexation. The Trieste crisis also played an important role in Italian domestic politics because it fueled Italian right-wing movements. Several youth organizations volunteered to mount strong protests against Tito and the Allied occupation of the city.
Finally, an agreement was signed in London on 10 May 1954 stipulating that Istria was to be administered by Yugoslavia and Trieste by Italy, with mutual respect of minority rights. This led to the Anglo-American withdrawal of troops from Trieste, which now passed to Italian sovereignty. On 10 December 1975, Italy and Yugoslavia signed the Osimo Treaty that finalized the border permanently with only a few slight modifications.
The dissolution of Yugoslavia after the Velvet Revolution of 1989–1990 did not change the Trieste situation. In June 1991, war broke out in the former Yugoslav territories, which led to the end of the Yugoslav federal state, as Croatia and Slovenia gained their independence. Both declared that they would respect the Yugoslav state's legacy and would therefore honor the Osimo Treaty. Italian Foreign Minister Emilio Colombo expressed Italy's satisfaction with this decision.
De Leonardis, Massimo. La diplomazia "Atlantica" e la soluzione del problema di Trieste (1952–1954). [Atlantic Diplomacy and the Resolution of the Trieste Problem (1952–1954)]. Naples, Italy: Esi, 1992.; Rabel, Roberto G. Between East and West: Trieste, the United States and the Cold War, 1941–1954. Durham, NC: Duke University Press, 1988.