The study analyses changes in urban and rural poverty levels in Ethiopia between 1994 and 1997 using stochastic dominance criteria. The results show that there are only small differences in urban and rural poverty levels. Rural poverty was significantly reduced between 1994 and 1997, will urban poverty remained largely unchanged. Both urban and rural areas saw an increase in average incomes combined with an increase in inequality. The welfare evaluation of these changes depends on one's valuation of efficiency or mean income change relative to equity change. We use a welfare criterion proposed by Tam and Zhang, by which rural welfare can be see to have increased even for relatively egalitarian preferences, while urban welfare did not increase even in the case of little concern for equality.