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The paper takes in stock of research results from a project on integrated water and forest management in a micro-basin of Gandaki River System in Nepal. The paper demonstrates that while the results on the ground has been laudable, much more efforts are needed to consolidate the gains and to seize the window of opportunity provided by the strongly and rapidly evolving community-based natural resource management institutions in the country that can contribute to positive policy reform, build synergy and enhance the capacities of local institutions communities to pursue integrated resource management for unleashing the countrys potentials to fulfill and exceed MDG targets and reduce poverty. From the information obtained through participatory action research, the paper explains that while abject poverty and chronic deprivations are visible, community-resource management equation has been rather favorable. Despite the positives of community-based institutions, their strong emergence has neither resulted in consistent poverty reduction nor has created the fundamentals for the equity-based institutional development. Nepal was also under armed-conflict for more than a decade until recently which seriously undermined community based institutions' efforts on poverty reduction, economic and social progress. Furthermore, the tradition of isolated community driven initiatives or institutional arrangement continues to override the overall essence carried by integrated community-led natural resource management. This clearly demands a re-think on long-held tradition of isolated community-based management actions for natural resources such as water and forest resources. It is also a pointer to the urgency of strengthening local government institutions and local community institutions to identify, plan and implement local level management actions for reducing inter-institutional disparities for achievement of poverty reduction targets and achievement of MDG outcomes.'