On February 5, 2003, the German Federal Ministry of Education and Research decided that the X-ray free-electron laser XFEL, proposed by the International TESLA Collaboration, should be realized as a European project and located at DESY/Hamburg. The ministry also announced that in view of the locational advantage, Germany is prepared to cover half of the investment and personnel costs for the XFEL. In the course of the last year work has concentrated on the following areas: setting up of an organizational structure at DESY for the preparation of the project, discussions with potential European partners on several levels, selection of a new site for the XFEL facility and the preparation of the 'plan approval procedure'. The present status of the technical layout of the Linear Accelerator, the SASE Undulator and Photon Beamlines and the experiment stations will be presented.

Although Terahertz (THz) radiation was first observed about hundred years ago, the corresponding portion of the electromagnetic spectrum has been for long time considered a rather poorly explored region at the boundary between the microwaves and the infrared. This situation has changed during the past ten years with the rapid development of coherent THz sources, such as quantum cascade laser, diodes, optically pumped solid state devices and novel free electron devices, which have in turn stimulated a wide variety of applications from material science to telecommunications, from biology to biomedicine. In this paper we review the development and perspectives of THz radiation sources and their applications with particular emphasis on the research effort carried out and planned in the frame of various European programs.