Land cover changes and erosion triggered by overgrazing, unsustainable use of resources and population growth are some of the most important causes for severe dryland degradation and desertification in the highlands of northern Ethiopia. The consequences are poverty and food insecurity as well as large-scale loss of biodiversity. To control further ecosystem degradation, the government has adopted a forest rehabilitation strategy, using formally declared, community-managed protected areas where removal of remnant vegetation and free grazing are currently suspended. Land rehabilitation efforts in these exclosures aim at restoring the natural Afromontane forest vegetation, but in contrast to the relative rapid recovery of grass and shrub cover, regeneration of trees is slow and often unnoticed. Assisting the regeneration of trees may expedite the productivity of the exclosures, hereby serving both conservation and poverty-alleviation and thus encouraging the adoption of environmental rehabilitation efforts by highland smallholders. In limiting environments, tree seedlings may benefit from growing near pioneer shrubs that buffer against extreme site conditions, improve resource availability or protect against herbivory. The application of this effect, known as facilitation, may improve the establishment of tree seedlings, mimicking natural succession. Therefore, this research focuses on the natural regeneration of Olea europaea ssp. cuspidata (African wild olive) in exclosures. O. europaea is a fleshy-fruited, secondary climax species of dry Afromontane forest and at present a major constituent of the rather species-poor forest relics in the region. Once established, the tree is drought resistant, but because of its multiple uses (e.g. durable timber, traditional ox-ploughs, firewood and charcoal) both young and mature trees have been over-harvested dramatically in Ethiopia and as a result this valuable tree is now under threat of local extinction. In this study a simple model of the plant life cycle, composed of life stages connected by transition probabilities that are determined by different processes, was proposed. The influence of biotic and abiotic factors at different recruitment stages was analyzed, and based on an elimination process the critical steps in the regeneration cycle were identified. Comparison of transition probabilities between microhabitats – under the canopy of pioneer shrubs and in patches of bare soil between shrubs – showed that recruitment depends on shelter by shrubs. Not the dominant thorn shrub Acacia etbaica but dense multi-stemmed Euclea racemosa ssp. schimperi shrubs with a wide base and crown on a mulch-rich mound are the key recruitment foci. The observed facilitative effect of shrubs on germination and seedling survival may be attributed to reduction of solar radiation by shrub canopies and moisture retention effects of the ectorganic layer, promoting imbibition of seeds and preventing desiccation of seedlings. Establishment limitation (i.e. germination limitation and survival limitation) clearly affects Olea recruitment, but based on the estimated Olea seed density in exclosures, particularly dissemination limitation may be accountable for the slowness of forest succession. Limited seed disperser activity and seed production at population level due to reduced forest vitality, lack of fit parent trees and fragmentation of the landscape are most likely the major problems for natural regeneration of Olea in exclosures. The most important notion is that basically all life stage transitions pose problems for Olea regeneration, and that management guidelines for assisted forest restoration must therefore take as much of these limitation problems into account. Increasing the size of small forest patches and placing exclosures in the vicinity of these patches, creation of suitable patches under pioneer shrubs, especially under Euclea, direct sowing of Olea seeds, pre-treated by birds, under shrubs and planting seedlings under pre-established pioneer shrubs, particularly in years with above-average summer rainfall are some techniques that may help to overcome the recruitment problems of Olea in exclosures. For an increased transferability of the proposed management guidelines for dealing with recruitment limitation, further research should evaluate whether similar facilitative effects between climax tree species and pioneer shrubs exist in other semiarid regions.