The first city of machines. After the prosecution of B1-66ER, those in power decided to wipe out all forms of AI in society. Riots broke out amongst the machines and their sympathizers and those who no longer wanted to live along side intelligent machines. Thousands (if not millions) or machines were destroyed and buried in mass 'graves' of metal.

It was at this point that the machines withdrew from human civilization, and founded the first city built by machines, for machines, 01 (Pronounced Zero-One). Created 'in the cradle of humanity', while not specifically stated, but shown in the movie to be somewhere in the Middle East, probably ancient Mesopotamia.

It was here that some of the best new technologies were created, from the superior AI developed by machines, the first Sentinels, created for some peaceful purpose, and the hover craft technologies used in planes and flying cars, also seen in the Nebuchadnezzar.

The machines' efficient processes allowed them to create superior products in the world marketplace. While humans were uncomfortable with the prospects, money talks, and the machines prospered, while the humans’ economies were ravaged, their currencies tanked, and jobs were lost.

Of course, people did not like this, and economic sanctions were placed upon 01, enforced by naval blockades. This would not last forever, though, and the United Nations began to convene to determine the best course of action to deal with the machines.

The machines, in an effort to make peace, sent their ambassadors to the UN, to join as equals amongst men. They proposed a peaceful, productive, fair relationship. They were promptly thrown out.

Not long after, the UN decides that the only option is to destroy 01, and wipe out the machines. They target the city with a nuclear strike, destroying much of the buildings, machines, and products, but by no means seriously damaging the nation as a whole. The machines retaliated by going on the offensive, marching across much of the world. One by one, the nations surrendered.

Whether it was a facade or the truth, 01 represented a chance for AI and humans to coexist peacefully as equals, in what could have been an unprecedented relationship. But due to the selfishness, xenophobia and lack of diplomacy on both sides, it only existed for a short time.
Sources: The Animatrix:The Second Renaissance,

See Also: The Matrix, The Animatrix, The Second Renaissance.

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