Palau was initially settled more than 4,000 years ago, probably by migrants from what today is Indonesia. British traders became prominent visitors in the 18th century, followed by expanding Spanish influence in the 19th century. Following its defeat in the Spanish-American War, Spain sold Palau and most of the rest of the Caroline Islands to Germany
in 1899. Control passed to Japan in 1914 and then to the United States under UN auspices in 1947 as part of the Trust Territory of the Pacific Islands.
Four of the Trust Territory districts formed a single federated Micronesian state in 1979, but the districts of Palau and the Marshall Islands declined to participate. Palau instead approved a new constitution and became the Republic of Palau in 1981, signing a Compact of Free Association with the United States in 1982. After eight referenda and an amendment to the Palauan constitution, the
Compact went into effect on October 1, 1994, marking Palau's emergence from trusteeship to independence. Palau was the last Trust Territory of the Pacific Islands territories to gain its independence. Under the Compact, the U.S. remains responsible for Palau's defense for 50 years.
While calm in recent years, Palau witnessed several instances of political violence in the 1980s. The republic's first president, Haruo I. Remeliik, was assassinated in 1985, with the Minister of State eventually found to be complicit in the crime. Palau's third president, Lazurus Salii, committed suicide in September 1988 amidst bribery allegations. Salii's personal assistant had been
imprisoned several months earlier after being convicted of firing shots into the home of the Speaker of the House of Delegates.
Legislation making Palau an "offshore" financial center was passed by the Senate in 1998. In 2001 Palau passed its first bank regulation and anti-money laundering laws.
Palau was selected as the venue for the American TV series Survivor for a 2005 season. This will almost certainly have an impact on tourism and help to educate Americans about this former US possession.