In 2102, scientists announced the greatest scientific breakthrough of the last two centuries, the theoretical prototype for a faster-than-light starship. Ironically, their work was based on the once-scorned theories of Kearny and Fuchida. The Terran Parliament authorized the Deimos Project, a crash program to develop an FTL drive. Although the Deimos project culminated in the maiden voyage of the first FTL ship to Tau Ceti in 2108, the billions spent on it created resentment and even rioting in some of the poorer Alliance member-states. This rift in the apparent unity of Terra was never completely repaired and the struggle between the "haves" and "have-nots" would continue to plague the Alliance.

Shortly afterward, Alliance shipyards began producing FTL-drive ships. By 2116, the first permanent space colony was established on Tau Ceti IV (New Earth). As engineering improvements reduced the cost of building FTL ships, corporations and even dissident private groups began to acquire their own vessels to exploit the seemingly limitless potential of the stars. The Terran Parliament soon acted to place colonization under its sole authority, passing laws requiring that all ships have a Terran naval escort, and placing all colonies under Terran jurisdiction in the form of an Alliance-appointed governor. In 2172, the first Alliance Grand Survey reported the existence of more than 100 settled human colonies spread across a sphere 80 light years in diameter. The fourth survey, conducted in 2235, recorded the settlement of more than 600 worlds.

As more and more planets were settled, the colonists began to encounter the problem of impure water supplies suitable neither for human consumption nor for irrigation. As the costs of water purification equipment were prohibitive for most colony worlds, the lack of potable water tended to discourage new exploration. In 2177, however, entrepreneur Rudolph Ryan patented a process for transforming interplanetary tankers into FTL-driven "iceships" able to quickly transport huge icebergs across interstellar space. Within a few short years, the Ryan Cartel became the single most profitable enterprise within the Alliance, and its iceships stimulated the colonization of many worlds previously believed only marginally habitable.

With each expansion of human-occupied space, the time needed to transmit messages to and from Terra also increased, making it difficult for Parliament to administer colony worlds directly. This forced the Alliance to delegate more authority to its appointed governors, who, in turn, had to grant extensive home-rule authority to colonists. When a coalition of colonies along the outer reaches of known space declared its independence in 2355, there began a bitter, 18-month battle with Terra, which became known as the Outer Reaches Rebellion. Much to its surprise, the Terran government lacked both the military resources and the political support needed to crush the rebellion.

The loss of these rebel worlds set off a political crisis within the Alliance that ultimately resulted in a vote of no-confidence against the ruling Expansionist Party. Upon taking power, the new Liberal government withdrew Terran troops and administrators from all frontier worlds, granting the colonies independence, whether they wanted it or not. This isolationist policy soon proved just as unpopular as expansionism because of the resulting political turmoil and economic upheaval. By 2242, the boundary of Alliance holdings was no more than 30 light years from Sol, a single jump by an FTL-ship. For the next 70 years, neither major political party was able to establish parliamentary control on Terra, and their respective regimes alternated, falling as quickly as they rose.

To escape the constant political unrest and economic hard times, many of Terra's best and brightest began to migrate to the now-independent colonies during the latter half of the 23rd century. Later historians dubbed this period "the Exodus." Terrans colonized more than 1500 new planets during the Exodus, extending the borders of human-occupied space to more than 150 light years from Sol. With more and more of Terra's resources devoted to colonization, scientific research lagged. On the struggling colony worlds, too, the colonists were too pressed with the problems of survival to think much about developing new technology. Meanwhile, some of the ex-colonies were attempting to consolidate their independence by banding together for mutual support. In 2271, the Treaty of Marik was signed by three minor heads of state. Thus was born the Free Worlds League, the first of the great federations that would one day vie for power and dominion over all the rest.