Rural development policy and the new CAP increasingly place agriculture in a wider context taking into account the diversification of rural economy, the quality of the environment and food safety to gain higher competitiveness of the farming sector. Combining expertise in agricultural sciences and regional policies TERESA aims to shed light on these interrelations and the impact of policies on it, focusing on three goals: Goal A - identifying interrelationships in rural areas: to identify typical interrelationships between farming activities, rural economy, rural society and the environment. Goal B - modelling: to develop a model demonstrating the typical interrelations between agriculture, the rest of rural economy and the environment in different types of rural areas in Europe and the impact of policies on its development. Goal C - assessing policies: to identify and to assess different integration policies regarding their effectiveness in generating positive externalities for farming activities and rural development. Reflecting the empirical and modelling results, options for future policies within the existing framework are set up and discussed in order to show different ways towards a sustainable and integrated rural development. Bearing in mind the multi-functionality of agriculture, TERESA contributes to the improvement of agriculture and forestry by assessing various policy options for sustainable rural development.