In the past decade, there has been a profound increase in the world's understanding of and concern about the forest sector of the developing world. A wide range of analyses and policy research has shed light on the determinants of the effective demand for land and wood (the cause of deforestation), the importance of tenure arrangements, and the links between government policies and the forest sector. The use of government policies to influence behavior in the sector is a principal theme of this paper which is organized as follows. First it describes the two most important challenges in the sector -- excessive deforestation and inadequate afforestation and reforestation -- and highlights the extent and the causes of the problems. It then discusses policies and programs directed toward overcoming the underlying causes of these problems. Finally, it discusses the role of the World Bank in supporting government's efforts to implement these policies and programs.