This article presents the results of rural livelihood analysis in the eastern Ethiopian highlands based on survey data obtained from 197 households. Typology of households was systematically developed. Then the research looked into livelihood strategies pursued by different categories of households, and assessed livelihood outcomes in terms of food security status. The research is guided by the framework for sustainable rural livelihood analysis. Descriptive statistics, multivariate discriminant analysis and regression with limited dependent variable, logit model, were used for data analysis. The finding shows that livelihood behaviour is diverse among different households and across sites in the study area and thus, the extent and nature of food insecurity. This finding challenges the current untargeted and uniform interventions for rural development in the highlands amidst diversity in livelihood assets endowment and heterogeneous livelihood strategies. Future interventions to support sustainable rural livelihoods must take into account diversity in endowment of livelihood resources and differences in livelihood strategies.