This paper attempts to show how nationalism has served to transcend political, social, economic and cultural challenges in Ethiopia. Nationalists in Ethiopia have attempted to harness national cohesion against threats from both within and outside of Ethiopia. External threats have always provided an opportunity to mobilize the citizens and suppress internal dissent in the name of national identity. This paper discusses different forms of nationalism in Ethiopia and attempts to demonstrate that in the conflict between Eritrea and Ethiopia, though territory and economic issues indeed played a role, to reduce the causes of conflict merely to these two factors is a mistake. This conflict has to be approached from a political-psychological aspect as well. Unless there is a change in the expression of nationalism and in the perception of national identity, it will be difficult to address the dynamic of the Eritrean-Ethiopian border conflict and find lasting solutions.