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Years 1920-1940, also known as Interwar Period, saw formation of two major blocks: Comintern and Entente. Over the course of those 20 years, nations of Europe rebuilt and militarised, which lead to a war.
Peace talks begun on 21 January 1920 in Metz, Germany. Germany didn't seek expansion in Europe and only acquired several colonies. Italy took back territories of Savoie, Nice and Monaco, lost in 1860 and island of Corsica, populated largely by Italians. Territories of Northern Macedonia, formerly controlled by Serbia, were ceded to Bulgaria. The world saw also major colonial reorganisation.
Instability in Europe
German economy was devastated as a result of the war. Germans, disappointed by lack of reforms promised by the emperor, rebelled, led by Communists and overthrew German government, creating Free Socialist Republic of Germany on July 1920. Germany quickly expanded its sphere of influence in central Europe. Germany saw instability in Austria-Hungary as an opportunity to further increase its power. Austria-Hungary ceased to exist on January 1921. Germans divided former Austro-Hungarian territory along roughly ethnic borders. Austria was incorporated into Germany. In 1924, after intervention in another socialist state - Soviet Union, Komintern was created, which ensured German hegemony over every socialist nation. German-funded revolution in Italy led to ascension of Italians to Komintern.
The defeated nations took different stance. In France, nationalist parties grew increasingly popular, in 1928 unified as Action Francaise. Action Francaise fanned French ethnic hatred of Germans and Italians and goaded fear of socialism, claiming that only salvation for France was strong, militaristic state.
In United Kingdom, war of Irish independence, initial battles were won by IRA, but in 1920, British counterattack retook control of major cities. To root out any Irish nationalism, United Kingdom started policies of terror and later forced resettlement and ethnic purges. In 1924, command of IRA was executed. As result of war, 50,000 people died, most of them were Irish civilians. Besides domestic trouble, United Kingdom had to deal with unrest in colonies as increasing number of Indians started demanding independence.
Soviet Russia was fighting a civil war with tsarist forces. In 1921, Ukrainian SSR, Transcaucasian SSR, Belarussian SSR and Russian SFSR joined together to create Soviet Union (officially: United of Soviet Socialist Republics).
Africa, Asia and America
After short period of democracy, Empire of Japan followed highly militaristic, expansionist and nationalist ideology. An organisation called Imperial Rule Assistance Association and in spite of lack of unity or cohesive ideology, it led to centralisation of power in hands of Hirohito. In 1935, Japan attacked and conquered Manchuria.
China was in a period called Warlord Era, where local dictators ruled cliques of China. An alliance between Chinese Communists and nationalists sought to unify the nation, which they mostly accomplished by 1928. After 1928, civil war between Communists and Nationalists broke out and by 1934 Communists were wiped out. Between 1934-1939 China annexed Tibet, Mongolia and Uighurstan. Japanese control of Manchuria led to an inevitable conflict.
USA, which was mostly unharmed by Great War greatly increased its position and became one of the most powerful nation of the world, alongside Germany and United Kingdom. Its position away isolated it from socialism and Fascism spreading in Europe.
In 1940, the Soviet Union signed a secret alliance with Japan, planning on attacking China. Japan wanted to expand into China to create a Pacific empire, while socialist block was afraid, that powerful China, leaning strongly towards capitalism could become a threat if let modernise. United Kingdom and France promised to help China in case of aggression against Japan, which in turn, colonial empires considered a threat to their colonial possessions.