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In 3653 BBY, while Imperial forces were engaged by the Republic's forces in the outer rim, Imperial forces attacked Coruscant and took it hostage after beating the Republic's forces.

The Sith Council then proposed the "Treaty of Coruscant," the terms of which included that the Republic's forces and the members of the Jedi Order were required to withdraw from battle against the Sith Empire by a deadline.

The treaty was accepted by the Galactic Republic and the Imperial forces left Coruscant free. After that, the Sith Empire started preparing for the next attack to conquer Coruscant.

My question: The whole point of the Great Galactic War was to take control of the Galaxy by capturing the core. The Sith Empire was successful in that when they took Coruscant hostage. What was the point of proposing the "Treaty of Coruscant"?

The Republic's forces were weak at that time. That's why they lost Coruscant, failed to clear Coruscant of the Empire's forces, and accepted the treaty. There wasn't any risk while keeping Coruscant hostage. After a period of time, they could always increase forces there to gain control over nearby space. Additionally, after connecting with main Imperial forces, it'd be a win-win situation. They would never have needed to prepare to capture Coruscant in the future again.

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http://starwars.wikia.com/wiki/Treaty_of_Coruscant

The exact reasons for Treaty aren't explained in much detail. What we do know is that the Treaty was proposed before the Sacking of Coruscant to end the Great Galactic War, so the attack on the capital and the Jedi Temple was more a show of power and was actually done to force the Republic into accepting the terms of their negotiations on Alderaan. It's probably also meant to be mysterious since no protagonist appearing in the books or games at that time is privy to the motives of the Dark Council and the Emperor (who proposed the Treaty in the first place).

The novel "The Old Republic: Deceived" touches on the reasons for not continuing the attack/occupation on Coruscant. A good summary would be that the Empire simply did not have the resources to occupy the planet of a trillion inhabitants. Bombarding the surface was possible, but they couldn't do anything about the immense populations resisting the occupation in the lower levels, especially considering the Empire had already been fighting for 28 years prior to the Treaty.

The novel is from Darth Malgus' point of view, and it seems the decision to withdraw came from his superiors, including Darth Angral and the Emperor himself. There's also no doubt that the plan worked very well to weaken the Republic - in SW:TOR, the lower levels of the city are depicted as almost entirely uncontrolled and gangs have taken over. The player characters on the Republic side end up cleaning up the mess started by the Sith Empire.

  • Holding Coruscant itself also doesn't seem to be vital from a strategic standpoint. Exar Kun & Ulic Qel-Droma were also able to invade Coruscant 500 years earlier, yet also left. – Omegacron Apr 1 '15 at 20:19
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Newer content within SW:TOR itself unveils that the idea for the "peace" between the Sith Empire and the Republic comes from the emperor himself. This is unveiled during the storyline revolving around The Maelstorm Prison flashpoint:

Revan was taken prisoner by the Emperor and tortured to get all information about the Republic so that it could be crushed. While he resisted the torture and the emperor, Revan managed to influence him in an attempt to save the Republic which resulted in the treaty (sort of like a mind trick). There are more details about that in the book The Old Republic: Revan by Drew Karpyshyn.

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