Ethiopia is one of the fastest growing economies in Africa. It is also a home to multitude of ethnicities, religions and cultures. The country has been experimented with several political formations with mixed results. The recent transformation into a federal state has put religion, ethnicities and the nature of the federal state into direct confrontation with each other. Like many developing countries, Ethiopia faces the major challenges in managing diversity of religion and ethnicity. Recent events (in the past fifteen months) indicate a rising tension between the state and Islam on the one hand and Islam and Christianity on the other. This paper explores the role of religion in social cohesion in Ethiopia and social cohesion as a prerequisite to development in Ethiopia. The article argues that social cohesion can only be enhanced and deeply promoted through collaborative efforts of all religions and through engagement with federal and state authorities.