A group of 4–7-year-old war orphans were examined for the first time while living in an institution (the Solomuna Orphanage) during a protracted war between Eritrea and Ethiopia. At that time, they were compared to a group of refugee children living in a nearby camp with one or both parents. The orphans exhibited significantly more behavioral symptoms than the refugee children, but performed the cognitive tests at a more advanced level. Five years later, the orphans were re-examined; and they were compared to unaccompanied 9–12-year-children living in one of two residential settings that differed qualitatively in their social climate, principles of child care, and patterns of staff–child interactions. Although the severity of their behavioral symptoms had diminished, the orphans still exhibited many symptoms of emotional distress. On the other hand, they performed the cognitive measures as well as, or better than, unaccompanied children who had been protected from the terrors of war. The cross-sectional comparisons indicated that a residential setting that respects the individuality of children and promotes their close personal ties with at least one staff member can ameliorate many of the more serious psychological sequelae of having lost both parents and being exposed to the physical dangers of the war. The implications for war orphans in other Third World countries are discussed.