Due to sever land scarcity, high population pressure and recurrent drought, farm households in the study area widely engage in and pursue diverse activities as livelihood strategies. The carrying capacity of agriculture to attain food and livelihood security is extremely declining from time to time. Diversifying livelihood strategies at current time become a common phenomenon in the study area. The major objectives of this study are, therefore, to identify the existing livelihood strategies adopted by rural households and to assess factors that determine households’ decision to choose alternative livelihood strategies. For the purpose of this study primary data were collected from randomly selected 300 households in four woredas (districts) of the zone. Descriptive statistics was applied to characterize the sample households’ social, economic, demographic and institutional factors. The finding of the survey result indicates that rural households in the study area practice diversified livelihood strategies, in that large part of the respondents (57.7%) combine agriculture with other activities (non/off-farm). Surprisingly, some farmers were pursuing non-farm and off-farm activities as the primary livelihood strategies rather than agriculture. Multinomial logit model applied to investigate factors influencing the households’ choice of livelihood strategies. In this regard, a total of 19 explanatory variables were included in the empirical model of which 11 were significant. These variables include agro-ecology, sex, education, farm size, livestock ownership, participation in social leadership, annual cash income, fertilizer use, improved seed use, age, and training which were determining farmers’ choice of livelihood strategies. The results of this study suggest that development interventions, policies and supportive services should be designed to suit the felt needs and circumstances of different groups of farmers.