In July 1975, the Derg issued Proclamation No. 47, which established kebeles, or urban dwellers' associations, in Addis Ababa and five other urban centers. Organized similarly to peasant associations, Addis Ababa's 291 kebeles possessed neighborhood constituencies ranging from 3,000 to 12,000 residents each. Like the peasant associations in the countryside, the kebeles were initially responsible only for the collection of rent, the establishment of local judicial tribunals, and the provision of basic health, education, and other social services in their neighborhoods. Kebele powers were expanded in late 1976 to include the collection of local taxes and the registration of houses, residents, births, deaths, and marriages.

During the height of the Red Terror, kebeles were responsible for ensuring neighborhood defense. Neighborhood defense squads patrolled their communities day and night and sometimes operated outside the control of the central authorities. Many brutal excesses were attributed to kebele defense squads between 1976 and 1978, but they were more closely monitored thereafter.

In April 1981, the Derg issued Proclamation No. 25, which provided kebeles with extended powers and a more elaborate administrative structure. According to this new structure, the general assembly, composed of all kebele residents, was empowered to elect a policy committee, which in turn was authorized to appoint the executive committee, the revolution defense committee, and the judicial tribunal. At the time of this proclamation, there were 1,260 kebeles in 315 towns.

The government estimated national kebele membership in the late 1980s at 4.4 million. The All-Ethiopia Urban Dwellers' Association (AEUDA) linked kebeles throughout the country. This organization's bureaucracy extended, in layers that paralleled the central bureaucracy, down to the neighborhood level. However, as in the countryside, the WPE had become the most important political institution, capable of overriding decisions taken by kebeles as well as by peasant associations.

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