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The paper examines livelihood conditions and explores policy options for mitigating poverty among tribal communities in Gujarat state, which is experiencing rapid economic growth and widening disparities where tribals are the most poor and deprived. While labour force diversification and migration are important coping mechanisms, these alone may not help lift a large number of the poor out of the poverty trap, which to a large extent is linked to degradation and lack of proper entitlement for managing and using forest resources among these communities. Forest-based livelihood options assume special significance especially in the wake of the emerging policy framework for adaptation and mitigation of climate change, where the main thrust could be on combining regeneration and conservation of forests with right kind of incentives for ensuring sustainable management and use of forest resources within the region. The mechanism of ‘compensated conservation’ proposed by India could prove very useful in this context. Copyright © 2009 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]