Free Territory of Trieste (Italian Territorio Libero di Trieste, Slovenian Svobodno tržaško ozemlje, Serbo-croatian Slobodna teritorija Trsta) was a neutral state consisting of the city of Trieste, a narrow strip of coastal land connecting it to Italy, and Istria. Established after World war II in 1947 as a part of the Treaty of Peace With Italy and formally dissolved and divided between Italy and Yugoslavia in 1954.
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 coastal towns of Istria. During 1920s and 1930s, the Slavic minority complained of Italianization under Rome's regime.
Italy fought with the Axis powers 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. On February 10, 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.
During late 1940s and in the years following the division of the territory, up to 200.000 Italians chose to leave the Yugoslav zone and move to Italy for various reasons - some left because of economic reasons, some had been supporters of the Italian Fascist regime, some were intimidated into leaving and some simply prefered to live in Italy. In Yugoslavia, the people who left were called optanti, while some of them call themselves esuli, the exiles. About 30.000 Italians chose to stay.
