In 1921 Italy formally annexed parts of Austria-Hungary it captured in World War I, including the city of Trieste, Istria and what is now western Slovenia. The area was heavily populated by Slovenians and Croats, with large numbers of Italians[?] living in Trieste and Istria. During 1920s and 1930s, the Fascist regime opressed Slovenians and Croats, who rebelled in 1941 after Italy invaded Yugoslavia.
Italy fought with the Axis in World War 2. When the Fascist regime collapsed in 1943 and Italy capitulated, Slovenia and Croatia (as parts of Yugoslavia) annexed the territory, but German forces occupied it. Yugoslav army captured Trieste on May 1, 1945. American and British forces arrived on the same day. In 1947, a peace treaty was signed which established the Free Territory of Trieste.
It was, however, divided into two zones: Zone A, including Trieste, administered by British forces, and Zone B, including Istria, administered by Yugoslav army. The Territory thus never functioned as an independent state. Even so, its formal status was respected and it issued its own currency and stamps.
In 1954 the Treaty of Osimo[?] was signed and the territory was formally divided along the zone border.
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