The conceptual and legal framework for the development of an effective system of local governance in Pakistan was created in July 2001, and a review of the Local Government Ordinance of 2001 reveals that the rules and procedures to govern the process have been set in place. Yet, four and a half years into devolution, political decentralization has not been followed by adequate administrative and fiscal decentralization to ensure quality service delivery to the public. This report assesses the progress and challenges of effective and efficient service delivery in the health, education, and water sectors, local fiscal roles and responsibilities, and local government accountability and citizen participation under devolution. Conclusions presented in the report focus on "governance" issues impeding successful devolution. Many of the recommendations are aimed at donor organizations and several are already being addressed by ongoing USAID projects.