Ishval
Ishbal (イシュヴァール, Ishuvāru), spelled "Ishval" in the Japanese manga, is a fictional region in the world of Fullmetal Alchemist.
It is to the east of Central and seems to have been in existence for several hundred years. Ishbal has been isolated from the rest of the world for decades, so it has no industrialized society. It was recently attacked and annexed by the country of Amestris, much to the dismay of its inhabitants. Because of this attack, the once prosperous land of Ishbal has been reduced to ruins and a barren desert.
Locals
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Natives of Ishbal are characterized by their brown skin and red eyes. They are a deeply religious people who reject alchemy (which they call "The Grand Arcanum") as a sin against their God, Ishbala. Ishbalans also despise the military of Amestris, most outsiders and Ishbalan exiles who were banished because they practiced alchemy. Although fictional, in the episode "The Ishbal Massacre" it is strongly suggested (through the architectural style of their buildings and the look and feel of their encivonment) that Ishbal is modeled upon real-life Arabia and that the inhabitants of Ishbal practice a religion similar to Islam. For example, one of their buildings is shaped like a mosque and they say that they believe that alchemy (which in Full Metal Alchemist is something that humans use to recombine simpler materials into more complex, useful ones) is a form of witchcraft that insults Ishbala by implying that humans can better upon His creations. Many real-world religions including Islam share this view about magic. Additionally, the story of the Ishbal Massacre hints at the 1948 Arab-Israeli War or the French invasion of Lebanon and Syria during the early 1900's.
The Ishbal Massacre
The Ishbal War began around the year 1900 when a special ops team from Ametris infiltrated the city and killed several locals. The people of Ishbal revolted and the Amestrisian military began a full scale assault on the region. According to Dr. Marcoh’s accounts, the resulting wave of violence "lasted seven years, until the Führer had had enough". Tired of the endless conflict in the region, King Bradley ordered a brigade of State Alchemists, led by then-Colonel Basque Grand, into Ishbal to end the war once and for all. After a futile attempt at defending their homeland, the surviving Ishbalans fled, only to be attacked by State Alchemists such as Grand and Zolf Kimblee. The remaining refugees were rounded up and relocated to concentration camps.
In the manga, the war begins after a child is shot by Envy, disguised as an Amestrisian soldier. A rebellion began, and Amestris sent in the military to put it down. Although the Amestrisian military was superior to the Ishbalan rebellion's forces, the rebels held out quite well against the military, killing many Amestrisian soldiers. It was decided that the powerful State Alchemists were to be used, and they were dispatched to the region. The Ishbalan annihilation campaign began, using the Alchemists as a key tool in murdering Ishbalan civilians as well as ending the rebellion. Although the leader of the Rebellion attempted to make a truce with the Führer by sacrificing himself in return for the sparing of the remaining Ishbalans, the Führer did not comply and continued the campaign, demonstrating that the war had escalated into a full-scale genocide, akin to that of the Holocaust.
The Philosopher's Stone
After being cast out as an exile for using alchemy, Scar's brother returned during the war and offered to create a Philosopher's Stone that could be used to drive out the invaders. He turned himself into a living transmutation circle and absorbed the souls of all the Ishbalans who died in the war to create the Stone. During the Ishbalans' flight, Scar was fatally wounded by Kimblee but was saved by his brother, who gave him his own right arm and all the souls he had absorbed. In the anime, Scar continued his brother's work on the Stone and after several years of research, created one in Lior by sacrifing his own life and the lives of 7,000 Amestrisian soldiers.
In the manga Ishbal makes no Philosopher Stone, Amestris uses them to make the first Philosopher's Stone which they gave to Kimblee. Scar's Brother never tries to make one.
The Future of Ishbal
Relations between Ishbal and Amestris improve in the anime. In the final episode of Fullmetal Alchemist, it was revealed that the new assembly of Amestris had decided to stop the war against Ishbal and help them rebuild on their old land.