Panama City, the capital and largest city, is on the Pacific coast in this central zone. The nation’s diverse population is largely of mixed Spanish, black, and Native American descent, but includes indigenous people and immigrants from many parts of the world.

As a land bridge between two continents, Panama developed plant and animal life more diverse than almost anywhere else on Earth. Prehistoric inhabitants of the Americas crossed Panama to reach South America and continued to migrate back and forth, sharing trade goods and culture and using the rich natural resources of the isthmus.

The earliest Europeans to explore Panama recognized its value as a link between the Atlantic and Pacific oceans. For two centuries, Spain used Panama as a major commercial center in its American colonies, shipping trade goods and African slaves to Peru and thousands of tons of silver and gold to Spain. In the 17th century Panama handled a significant share of world trade.

By the 19th century, new technologies and machinery, such as steam-powered shovels and trains, steel, and reinforced concrete, made it possible to attempt to fulfill a longtime European dream of building a canal across Panama. In the 1880s a French company lost a fortune and thousands of lives trying unsuccessfully to dig a sea-level canal. In 1903 the United States government helped Panama, then a province of Colombia, to become an independent nation. The United States then acquired permission from the new republic to build a canal.

The Panama Canal, completed in 1914, represented a great engineering achievement. But a controversial treaty gave the United States control over the canal and important segments of Panama’s territory and economy. This prevented Panamanians from controlling a facility they considered crucial for their well-being and national development. Much of modern Panama’s history centers on the struggle of its people to benefit from the Panama Canal and the lands through which it passed, the Panama Canal Zone.

While pursuing that goal, Panama developed its own unique culture and system of government and built an economy that did not depend solely on the canal. Issues concerning the canal caused tension with the United States through much of the 20th century.

In the 1970s new treaties brought Panama's goal of controlling the canal, and its own destiny, within reach. Under these agreements, Panama took possession of the Panama Canal on December 31, 1999. Other conflicts between Panama's government and the United States, however, led to a U.S. invasion in 1989 to overthrow the dictatorship of Manuel Antonio Noriega.