Parts of Abu Dhabi were settled in the 3rd millennium BC and its early history fits the nomadic herding and fishing pattern typical of the broader region. Modern Abu Dhabi traces its origins to the rise of an important tribal confederation, the Bani Yas, in the late 18th century, which also subsequently assumed control of the town of Dubai. In the 19th century the Dubai and Abu Dhabi branches parted ways.
Into the mid-20th century, the economy of Abu Dhabi continued to be sustained mainly by camel herding, production of dates and vegetables at the inland oases of Al Ain and Liwa Oasis, and fishing and pearl diving off the coast of Abu Dhabi city, which was occupied mainly during the summer months. Most dwellings in Abu Dhabi city were, at this time constructed of palm fronds (barasti), with the wealthier families occupying mud huts. The growth of the cultured pearl industry in the first half of the twentieth century created hardship for residents of Abu Dhabi as pearls represented the largest export and main source of cash earnings.
In 1939, Sheikh Shakhbut Bin-Sultan Al Nahyan granted petroleum concessions, and oil was first found in 1958. At first, oil money had a marginal impact. A few lowrise concrete buildings were erected, and the first paved road was completed in 1961, but Sheikh Shakbut, uncertain whether the new oil royalties would last, took a cautious approach, preferring to save the revenue rather than investing it in development. His brother, Zayed bin Sultan Al Nahyan, saw that oil wealth had the potential to transform Abu Dhabi. The ruling Al Nahyan family decided that Sheikh Zayed should replace his brother as ruler and carry out his vision of developing the country. On August 6, 1966, with the assistance of the British, Sheikh Zayed became the new ruler. 
With the announcement by the UK in 1968 that it would withdraw from the Persian Gulf area by 1971, Sheikh Zayed became the main driving force behind the formation of the United Arab Emirates.