This chapter considers the historical context of North-South relations and a changing strategic environment in North-East Asia offering opportunities and challenges for the governments of both North and South Korea. 2012 was arguably a pivotal year for the diplomatic and strategic relations of the Korean Peninsula. Perhaps the most decisive and significant event affecting North-South relations has been the dramatic change in the leadership of North Korea, following the death in December 2011 of Kim Jong Il. More generally, South Korean and US officials have worked effectively to promote President Lee’s aspiration to enhance South Korea’s status as a ‘middle power’ active in a range of critical economic, diplomatic and security policy areas both regionally and globally. US defence policy makers would like to see South Korea assume a bigger share of bilateral defence burden-sharing, closer to a 50% contribution, rather than the 42% figure favoured by South Korean officials.