Khankendi (literally "Khan’s village" in Azerbaijani) long served as the so-called capital of Armenian separatists who captured Azerbaijan’s Karabakh region decades ago. Liberated by Azerbaijan with a counterterrorism operation in September 2023, the city (which was called Stepanakert by Armenians) is nowadays seeing renovation and improvement work everywhere.

Baku launched a restoration and construction project across the city where Azerbaijani flags are now ubiquitous after its liberation, as they did in other towns and cities taken back from Armenian occupiers. New public buildings and hotels are rising in the skyline of Khankendi, which is currently not populated after Armenian separatists left in the aftermath of a counterterrorism operation. For now, workers and civil servants are the only inhabitants, while cafes, restaurants and parks are among the open venues.

Azerbaijan plans to make Khankendi a popular destination for students. President Ilham Aliyev, who visited the city about one month after liberation and hoisted the Azerbaijani flag as a sign of victory, ordered the establishment of Karabakh University in the city. The university is under construction and is expected to be fully open next academic year.

Khankendi was established in the 18th century by the Karabakh Khanate. The Russian Empire settled Armenians in the city, and in the Soviet era, it was named after Stepan Shahumian, an Armenian Bolshevik leader notorious for his massacres of Azerbaijanis. Azerbaijan renamed it Khankendi in 1991.

The Armenian military occupied Karabakh, a territory internationally recognized as part of Azerbaijan, and seven adjacent regions. Most of the territory was liberated by Azerbaijan during a war in the fall of 2020, which ended after a Russian-brokered peace agreement that also opened the door to normalization.

Azerbaijan established full sovereignty in Karabakh after the counterterrorism operation last year, after which separatist forces in the region surrendered.​​​​​​

Azerbaijan wants to borrow $5 billion from international credit institutions in the coming years for large infrastructure projects, including in Karabakh, the finance minister told Reuters in May.

"Very big tasks stand before us," Finance Minister Samir Sharifov said in an interview. He said the tasks in question were linked with the reconstruction and restoration of land now under Azerbaijan's control, something that would also boost the country's economic growth.

"There are several large projects in the transport infrastructure field that could be financed by attracting borrowed resources," Sharifov said. "Overall, we are talking about additional borrowing of $5 billion."

President Aliyev said in May that Baku would begin resettling Khankendi in September.

Aliyev was quoted speaking about Khankendi by Azerbaijan's national press agency while meeting residents in Khojaly, another town in Karabakh retaken from Armenians. In response to a resident who told Aliyev that he wanted to visit Khankendi, where the man said he had once been held captive, the Azerbaijani leader replied: "Go and see these places. Because resettlement in Khankendi will begin in September."

"The first to move will be students and their teachers," Aliyev said. "Karabakh University will begin its activities."

Aliyev added that resettlement would also begin in September in the ghost town of Agdam, home to a joint Russian-Turkish cease-fire monitoring center, which shuttered amid a withdrawal of Russian peacekeepers from the region. Khankendi was nearly emptied by war. Only a few hundred people remained a month after the civilian exodus, an International Committee of the Red Cross official said. In March, Azerbaijani state television broadcast footage showing mechanical diggers destroying the building in Khankendi that once housed the breakaway ethnic Armenian Parliament.