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The first people known to have inhabitated Iceland were Irish monks or hermits who came in the eighth century, but left with the arrival of the pagan Norsemen, who systematically settled Iceland in the period 870 - 930 A.D. Iceland was thus the last European country to be settled.

The main source of information about the settlement period in Iceland is the Landnαmabσk (Book of Settlements), written in the 12th century, which gives a detailed account of the first settlers. According to this book Ingσlfur Arnarson was the first settler. He was a chieftain from Norway, arriving in Iceland with his family and dependents in 874. He built his farm in Reykjavνk, the site of the present capital. During the next 60 years or so, viking settlers from Scandinavia, bringing some Celtic people with them, spread their homesteads over the habitable areas. In the year 930, at the end of the Settlement period, a constitutional law code was accepted and Alώingi established. The judicial power of Alώingi was distributed between four local courts and a type of a Supreme Court held annually at the national assembly at ήingvellir.

In the year 1000 Christianity was peacefully adopted by the Icelanders at Alώingi, which met for two weeks every summer, attracting a large proportion of the population. The first bishopric was established at Skαlholt in South Iceland in 1056, and a second at Hσlar in the north in 1106. Both became the country's main centres of learning.

In the late tenth century Greenland was discovered and colonized by Icelanders under the leadership of Eirik the Red, and around the year 1000 Icelanders were the first Europeans to set foot on the American continent, 500 years before Columbus, although their attempts to settle in the New World failed.

In 1262-64 internal feuds, amounting to a civil war, led to submission to the King of Norway and a new monarchial code in 1271. When Norway and Denmark formed the Kalmar Union in 1397, Iceland fell under the sovereignty of the King of Denmark. After the "Golden Age" of Iceland's independence had ended, the situation went from bad to worse. The Danish kings brought about the Reformation of the Church in 1551, which resulted in Danish control over the Church, and confiscation of its great wealth. They replaced the Hansa and English trade with an oppressive Danish trade monopoly, and established absolute monarchy in 1662, thus transfering all governing power to Copenhagen. While this arrangement was very profitable for the Danish Crown, these changes were disastrous for the Icelandic economy. Further problems arose in the food supply due to cooling of the climate during the 16th and 17th centuries.

The eighteenth century marked the most tragic age in Iceland's history. In 1703, when the first complete census was taken, the population was approximately 50,000, of whom about 20% were beggars and dependents. From 1707 to 1709 the population declined to about 35,000 because of a devastating smallpox epidemic. Twice more the population declined below 40,000, both during the years 1752-57 and 1783-85, due to a series of famines and natural disasters.

At the end of the 18th century Alώingi had been dissolved and the old diocese replaced by one bishop residing in Reykjavνk. As a consequence of the plight of the populace the trade monopoly was modified in 1783 and all subjects of the Danish king given the right to trade in Iceland.

In 1843 Alώingi was reinstituted as a consultative assembly. In 1854 trade monopoly was abolished entirely. In 1874, when Iceland celebrated the millenium of the first settlement, it received a constitution from the Danish king and control of its own finances.

In 1904 Iceland received home rule and finally in 1918 sovereignty, but was united with Denmark under the Danish crown. In 1940 Iceland was occupied by British forces, which were replaced in 1941 by American troops by special agreement between the Icelandic and American governments. Finally, on 17 June 1944, the Republic of Iceland was formally proclaimed at ήingvellir.