How Egypt and Ethiopia will defend or promote their interests in the Nile basin has recently become clearer. Egypt will again seek to create ‘facts on the ground’, this time a large new land reclamation and settlement scheme called the New Valley Project. Ethiopia too will create facts by proceeding with water resources development in the Blue Nile basin, including the construction of low-cost microdams. If Egypt and Ethiopia pursue these two unilateral initiatives, they may find themselves on a collision course that both may have difficulty changing. The challenge facing the Nile riparian countries is to find a balance between the upstream countries' support for the principle of ‘equitable use’, and Egypt's and Sudan's support for the principle of ‘no appreciable harm’. Of all the riparian states, Egypt has the most to gain from the establishment of a basin-wide framework for water resources development. It can ill afford a future in which upstream riparians take unilateral action with respect to water development projects. If Egypt would reduce its existing water use by 5 billion m3 and scale back or abandon the plans for the New Valley Project, there would be enough water available to strike a deal that would bring Ethiopia and other upstream riparians into the framework of a comprehensive Nile Waters Agreement.