Initial exchanges were good-natured and conciliatory, however the Bhutanese proved far from accommodating, submissive or malleable. Follow-up missions consolidated associations without ever fully achieving the desired objectives of the British. By the beginning of the nineteenth century relations had begun to deteriorate over territorial disputes in the southern border areas of Cooch Bihar, Bengal and Assam. Ongoing tensions began to escalate on the matter of the Bengal and Assam Duars (southern approaches), leading to the Ashley Eden mission in 1864 and on the 12th November 1864 a British declaration of war annexing the Duars. During the one year Duar War the Bhutanese proved worthy opponents, gaining a reputation for their military skills, personified in a successful counteroffensive led by Jigme Namgyal. Although the British achieved final victory, the nature of resistance certainly influenced the decision that an invasion of the inhospitable mountainous terrain of Bhutan itself was untenable. The Treaty of Sinchula, signed on 11th November 1865, was to prove a defining moment in Indo-Bhutan relations. The Bhutanese surrendered all the Bengal and Assam Duars, imports from either country were to be recognized as duty-free and the British consulted concerning Bhutan's external relations. However, Bhutan's territory was roughly defined and internal affairs were to be independently determined. Moreover, the British agreed to pay an annual compensation for the lost territory.

1865 marks the Bhutanese retreat to the hills and focus on domestic preoccupations. Under the leadership of Ugyen Wangchuck the country was to achieve internal unity and external recognition. Relations between Bhutan and the British improved, as traditional territorial matters gave way to the more subtle issues of regional diplomacy. Ugyen Wangchuck recognized that Bhutanese interests would be better served through a policy of alliance and limited appeasement, reflected in the neutral stand taken in the 1888 dispute between India and Tibet and assistance provided to the 1904 Younghusband expedition to Lhasa, for which he was conferred with the insignia of Knight Commander of the Indian Empire. Continued good relations were reflected in the strong friendship between Ugyen Wangchuck and John Claude White, the then political officer in Sikkim, a meeting in India with the Prince of Wales, the future George V, a high level British presence at the coronation of Ugyen Wangchuck and the 1910 Treaty of Punakha. This treaty clarified the position whereby the British would guide foreign policy but exercise no influence in internal administration. Thus a relationship was established that was both affable yet reserved.

The product of Bhutan's initial encounters with modernity both demarcated the country's territorial boundaries and maintained a clear division between internal and external realms. The Bhutanese, conscious that an intimate relationship at this time with the more profound aspects of modernity might compromise the country's independence, chose to remain a stable and secluded ally. Ugyen Wangchuck had however been exposed to the more modern world and the notion of development. Particularly appreciating the importance of modern education, he decided to start schools to prepare the country for an inevitable modern epoch. Upon his death in 1926 Ugyen Wangchuck was succeeded by his son the second King Jigme Wangchuck (1905-1952), who was to further his father's initiatives. Consolidating internal stability and the position of the monarchy, he reformed and centralized the administrative system. Furthermore, conscious of the inherent threats to the sovereignty of the nation, which remained somewhat ambiguous under the British, he entered into relations with the newly independent India. On the 8th August 1949 a treaty of friendship was signed, which recognized Bhutan's independence and ushered in the continuing close and mutually beneficial relationship between the small Kingdom and its powerful neighbor.

By the middle of the Twentieth Century Bhutan stood as a remote, inward-looking and to a large extent isolated land on the threshold of modernity. The situation was however soon to change, a reorientation of perspective influenced by an inevitable modernizing momentum, alterations in the regional political scenario and the progressive outlook of the third King Jigme Dorje Wangchuck (1928-1972). Generally regarded as the father of modern Bhutan, Jigme Dorje Wangchuck acceded the throne upon the death of his father in 1952. The country he inherited was now from a traditional standpoint fairly matured, recognized both internally and externally as an independent, stable and relatively unified nation under the strong and legitimate leadership of a hereditary monarchy. It however remained almost completely untouched by modernizing processes. Keenly aware of both the inevitability of eventual integration with and the potential benefits to be derived from the modern world, Jigme Dorje Wangchuck personally undertook preemptory initiatives aimed at preparing the country for a more intimate relationship with the outside world. In 1953 he established a National Assembly as the first fully representative national forum, in 1956 serfdom was abolished, soon followed by an extensive series of land reforms, bringing to an end traditional feudal relations. The King further understood that the future sovereignty and independence of his tiny Kingdom would be dependent on its ability to successfully adapt to modern realities.

By the late 1950s the third King's vision of a modernizing Bhutan was to strongly correspond with the Indian priority of promoting closer connections. China's invasion of Tibet had highlighted new issues in Sino-Indian border security, with India anxious to establish a direct counterbalancing presence on the southern side of the Himalayas. When Prime Minister Jawaharlal Nehru, accompanied by his daughter Indira Gandhi, visited Bhutan in 1958, the terms of such integration would have dominated the agenda. India was to provide assistance in the establishment a basic communications network, linking the Kingdom both internally and externally, and to help Bhutan undertake associated modernizations. In 1961, closely preceded by the construction of the first motor road linking the two countries, Bhutan's first five-year development plan was put into operation, ushering in a new era in the country's historical evolution. Significantly, the integration process was coordinated at the centralized level, which allowed a degree of order to be maintained in transition. Bhutan joined the Colombo Plan in 1962, the International Postal Union in 1969 and finally, in 1971, became a member of the United Nations. Successive development plans were implemented, supported by evolutions in government and civil administration. Upon his death in 1972 Jigme Dorje Wangchuck was to bequeath the present King Jigme Singye Wangchuck a nation that had in a few years undergone a transformation in orientation, and was now negotiating the tricky path towards modernization.