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The name Australia is derived from the Latin australis, meaning "southern". The country has been referred to colloquially as Oz since the early 20th century. Aussie is a common colloquial term for "Australian".

The name Australia was popularised by the explorer Matthew Flinders, who pushed for it to be formally adopted as early as 1804. When preparing his manuscript and charts for his 1814 A Voyage to Terra Australis, he was persuaded by his patron, Sir Joseph Banks, to use the term Terra Australis as this was the name most familiar to the public. Flinders did so, and published the following rationale:

There is no probability, that any other detached body of land, of nearly equal extent, will ever be found in a more southern latitude; the name Terra Australis will, therefore, remain descriptive of the geographical importance of this country, and of its situation on the globe: it has antiquity to recommend it; and, having no reference to either of the two claiming nations, appears to be less objectionable than any other which could have been selected.

In the footnote Flinders wrote:

*  Had I permitted myself any innovation on the original term, it would have been to convert it to AUSTRALIA; as being more agreeable to the ear, and an assimilation to the names of the other great portions of the earth.

The first time that the name Australia appears to have been officially used was in a despatch to Lord Bathurst of 4 April 1817 in which Governor Lachlan Macquarie acknowledges the receipt of Capt. Flinders' charts of Australia. On 12 December 1817, Macquarie recommended to the Colonial Office that it be formally adopted. In 1824, the Admiralty agreed that the continent should be known officially as Australia.

Human habitation of the Australian continent is estimated to have begun between 42,000 and 48,000 years ago, possibly with the migration of people by land bridges and short sea-crossings from what is now South-East Asia. These first inhabitants may have been ancestors of modern Indigenous Australians. At the time of European settlement in the late 18th century, most Indigenous Australians were hunter-gatherers, with a complex oral culture and spiritual values based on reverence for the land and a belief in the Dreamtime. The Torres Strait Islanders, ethnically Melanesian, were originally horticulturalists and hunter-gatherers. The northern coasts and waters of Australia were visited sporadically by fishermen from Maritime Southeast Asia.[45]

The first recorded European sighting of the Australian mainland, and the first recorded European landfall on the Australian continent, are attributed to the Dutch navigator Willem Janszoon. He sighted the coast of Cape York Peninsula in early 1606, and made landfall on 26 February at the Pennefather River near the modern town of Weipa on Cape York. The Dutch charted the whole of the western and northern coastlines and named the island continent "New Holland" during the 17th century, but made no attempt at settlement. William Dampier, an English explorer and privateer, landed on the north-west coast of New Holland in 1688 and again in 1699 on a return trip. In 1770, James Cook sailed along and mapped the east coast, which he named New South Wales and claimed for Great Britain. With the loss of its American colonies in 1780, the British Government sent a fleet of ships, the "First Fleet", under the command of Captain Arthur Phillip, to establish a new penal colony in New South Wales. A camp was set up and the flag raised at Sydney Cove, Port Jackson, on 26 January 1788, a date which became Australia's national day, Australia Day although the British Crown Colony of New South Wales was not formally promulgated until 7 February 1788. The first settlement led to the foundation of Sydney, the establishment of farming, industry and commerce; and the exploration and settlement of other regions.

A British settlement was established in Van Diemen's Land, now known as Tasmania, in 1803 and it became a separate colony in 1825. The United Kingdom formally claimed the western part of Western Australia (the Swan River Colony) in 1828. Separate colonies were carved from parts of New South Wales: South Australia in 1836, Victoria in 1851, and Queensland in 1859. The Northern Territory was founded in 1911 when it was excised from South Australia. South Australia was founded as a "free province"—it was never a penal colony. Victoria and Western Australia were also founded "free", but later accepted transported convicts. A campaign by the settlers of New South Wales led to the end of convict transportation to that colony; the last convict ship arrived in 1848.

The indigenous population, estimated to have been between 750,000 and 1,000,000 at the time European settlement began, declined for 150 years following settlement, mainly due to infectious disease. A government policy of "assimilation" beginning with the Aboriginal Protection Act 1869 resulted in the removal of many Aboriginal children from their families and communities—often referred to as the Stolen Generations—a practice which may also have contributed to the decline in the indigenous population. The Federal government gained the power to make laws with respect to Aborigines following the 1967 referendum. Traditional ownership of land—aboriginal title—was not recognised until 1992, when the High Court case Mabo v Queensland (No 2) overturned the legal doctrine that Australia had been terra nullius ("land belonging to no one") before the European occupation.

A gold rush began in Australia in the early 1850s and the Eureka Rebellion against mining licence fees in 1854 was an early expression of civil disobedience. Between 1855 and 1890, the six colonies individually gained responsible government, managing most of their own affairs while remaining part of the British Empire. The Colonial Office in London retained control of some matters, notably foreign affairs, defence, and international shipping.

On 1 January 1901, federation of the colonies was achieved after a decade of planning, consultation and voting. The Commonwealth of Australia was established and it became a dominion of the British Empire in 1907. The Federal Capital Territory (later renamed the Australian Capital Territory) was formed in 1911 as the location for the future federal capital of Canberra. Melbourne was the temporary seat of government from 1901 to 1927 while Canberra was being constructed. The Northern Territory was transferred from the control of the South Australian government to the federal parliament in 1911. In 1914, Australia joined Britain in fighting World War I, with support from both the outgoing Commonwealth Liberal Party and the incoming Australian Labor Party. Australians took part in many of the major battles fought on the Western Front. Of about 416,000 who served, about 60,000 were killed and another 152,000 were wounded. Many Australians regard the defeat of the Australian and New Zealand Army Corps (ANZACs) at Gallipoli as the birth of the nation—its first major military action. The Kokoda Track campaign is regarded by many as an analogous nation-defining event during World War II.

Britain's Statute of Westminster 1931 formally ended most of the constitutional links between Australia and the UK. Australia adopted it in 1942, but it was backdated to 1939 to confirm the validity of legislation passed by the Australian Parliament during World War II. The shock of the United Kingdom's defeat in Asia in 1942 and the threat of Japanese invasion caused Australia to turn to the United States as a new ally and protector. Since 1951, Australia has been a formal military ally of the US, under the ANZUS treaty. After World War II Australia encouraged immigration from Europe. Since the 1970s and following the abolition of the White Australia policy, immigration from Asia and elsewhere was also promoted. As a result, Australia's demography, culture, and self-image were transformed. The final constitutional ties between Australia and the UK were severed with the passing of the Australia Act 1986, ending any British role in the government of the Australian States, and closing the option of judicial appeals to the Privy Council in London. In a 1999 referendum, 55% of voters and a majority in every state rejected a proposal to become a republic with a president appointed by a two-thirds vote in both Houses of the Australian Parliament. Since the election of the Whitlam Government in 1972, there has been an increasing focus in foreign policy on ties with other Pacific Rimnations, while maintaining close ties with Australia's traditional allies and trading partners.

The Aboriginal people were the first inhabitants of the Australian continent. Most anthropologists currently believe they migrated to the continent at least 50,000 years ago and occupied most of the continent by 30,000 years ago. Subsequently, rising sea levels separated Tasmania and other immediate offshore islands from the rest of the continent. Although Chinese, Malaysian, Indonesian, and Arab seafarers may have landed in northern Australia well before ad 1500, Australia was essentially unknown in the West until the 17th century.

In principle, the official colonial policy throughout the 19th century was to treat the Aboriginal people as equals, with the intention of eventually converting them to Christianity and European civilization. Governor Macquarie even established a school for Aboriginal children. Although official policy stressed good intentions, such acts were frequently not supported and were sometimes even actively resisted.

In the 1830s and 1840s Christian missions and protectorates were established throughout Australia, and many Aboriginal people were sent to them. The protectorates were created under British legislation requiring the protection of indigenous peoples throughout the British Empire. They were often formed under religious auspices, although most later came under state control. Mission life had a profound and lasting impact on the lives of Aboriginal families. Many, if not most, Aboriginal people lived under the influence of the missions, which in the early 20th century became the main conduit for Aboriginal children being fostered or adopted into white families. (In recent years many of these adoptees, known as the Stolen Generation, have sought redress for the loss of parental contact and Aboriginal identity.)

The clash between whites and Aboriginal people was especially severe on the frontier. In the 1830s and 1840s, as settlers pushed inland, some Aboriginal people were employed on sheep stations, and others were used for police patrols, but even some active church efforts to serve and educate the Aboriginal people did not stabilize race relations. White settlers sometimes poisoned and hunted Aboriginal people and abused and exploited Aboriginal women and children. The primary causes of the catastrophic decline in Aboriginal population, however, were probably European-introduced diseases such as smallpox and measles, malnutrition, and alcoholism and its associated violence. Between 1788 and 1930 the Aboriginal population fell from as many as 500,000 to less than 100,000. By the 20th century Aboriginal people living in their traditional way were largely confined to remote areas of the Northern Territory, Queensland, and Western Australia. Not until the 1950s did the Aboriginal population begin to inch back to its level prior to European contact, and not until the 1970s did the federal government begin to review and correct past policies.

Between 1851 and 1891 the Australian population grew from 437,000 to 3.2 million. It became one of the fastest growing and most urbanized regions of the world. In 1891 more than one-third of Australians lived in the six capital cities. The largest cities, Melbourne and Sydney, were as populous as all but the largest European and American cities. The colonial cities sprawled; Melbourne’s 473,000 people occupied as much area as London’s 4.7 million.

Federation of the Australian colonies came later than similar movements elsewhere. The idea of unification appeared as early as 1847 in proposals by Earl Grey, Britain’s colonial secretary. In the 1850s John Dunmore Lang, a Scottish Presbyterian cleric in New South Wales, formed the Australian League to campaign for a united Australia. Conferences among colonial governments in the 1860s also considered closer cooperation and unification. With the formation of the Dominion of Canada in 1867, British officials began to expect a similar effort among Australians.

As trade and communications between the colonies advanced, pressure mounted for the lowering of the customs barriers between them. Debate over the White Australia Policy demonstrated the need for uniform immigration rules. As more Australian workers unionized, trade unions became more centralized, suggesting the attractiveness of a single economic and political system. Unstable economic conditions and outright depression by 1892 contributed to the development of labor parties in each colony to represent worker interests.

In the early 1890s the long economic boom that had sustained the colonies’ progress since the 1860s came to an abrupt end. The crash hit Melbourne especially hard, and helped to shift the initiative in the federal movement from Victoria, where it had been strong during the 1880s, to New South Wales. In 1889 the premier of New South Wales, Henry Parkes, announced his support for a new form of federalism that was not based on the Federal Council model. In 1891 a convention of colonial delegates in Sydney began drafting a federal constitution, but political and regional rivalries slowed the process. It was 1897 before the policymakers agreed upon a draft constitution and 1899 before the Australian people finally approved it. The Commonwealth of Australia was accordingly approved by the British Parliament in 1900 and became a reality on January 1, 1901.