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Recently observed changes in the Arctic have highlighted the need for a better understanding of Arctic dynamics. This research addresses that need and is also motivated by the recent finding of two regimes of Arctic ice - ocean wind-driven circulation. In this paper, we demonstrate that during 1946-1997 the Arctic environmental parameters have oscillated with a period of 10-15 years. Our results reveal significant differences among atmosphere, ice, and ocean processes during the anticyclonic and cyclonic regimes in the Arctic Ocean and its marginal seas. The oscillating behaviour of the Arctic Ocean we call the Arctic Ocean Oscillation (AOO). Based on existing data and results of numerical experiments, we conclude that during the anticyclonic circulation regime the prevailing processes lead to increases in atmospheric pressure, in ice concentration and ice thickness, river runoff, and surface water salinity - as well as to decreases in air temperature, wind speed, number of storms, precipitation, permafrost temperatures, coastal sea level, and surface water temperature. During the cyclonic circulation regime the prevailing processes lead to increased air and water temperatures, wind speed, number of storms,open water periods, and to decreases in ice thickness and ice concentration, river runoff, atmospheric pressure, and water salinity. The two-climate regime theory may help answer questions related to observed decadal variability of the Arctic Ocean and to reconcile the different conclusions among scientists who have analysed Arctic data obtained during different climate states.