Iceland was settled in the late 9th and early 10th centuries, principally by people of Norse origin. In 930 A.D., the ruling chiefs established a republican constitution and an assembly called the Althingi (Alþingi) the oldest parliament in the world. Iceland remained independent until 1262, when it entered into a treaty establishing a union with the Norwegian monarchy. Iceland was then passed to Denmark in the late 14th century when Norway and Denmark were united under the Danish crown.
In the early 19th century, national consciousness was revived in Iceland. The Althingi had been abolished in 1800 but was reestablished in 1843 as a consultative assembly. In 1874, Denmark granted Iceland limited home rule, which was expanded in scope in 1904. The constitution, written in 1874, was revised in 1903. The Act of Union, a 1918 agreement with Denmark, recognized Iceland as a fully sovereign state united with Denmark under a common king. Iceland established its own flag, but Denmark continued to represent Icelandic foreign affairs and defense interests.
German occupation of Denmark in 1940 severed communications between Iceland and Denmark. Consequently, Iceland moved immediately to assume control over its own territorial waters and foreign affairs. In May 1940, British military forces occupied Iceland. Responsibility for Iceland's defense passed to the United States in July 1941. Following a plebiscite, Iceland formally became an independent republic on June 17, 1944. In October 1946, the Icelandic and U.S. Governments agreed to terminate U.S. responsibility for the defense of Iceland, but the United States retained certain rights at Keflavik. Iceland became a charter member of the North Atlantic Treaty Organization (NATO) in 1949. After the outbreak of hostilities in Korea in 1950, and pursuant to the request of NATO military authorities, the United States and Iceland agreed that the United States should again make arrangements for Iceland's defense. A bilateral defense agreement signed on May 5, 1951 remains in force, even though the U.S. military forces are no longer permanently stationed in Iceland. Iceland is the only NATO country with no standing military of its own.
Sources:CIA World Factbook (November 2011)
U.S. Dept. of State Country Background Notes ( November 2011)