Quoted: just a quick history thumbnail: sunni's believe mo appointed his father-in-law as his successor. the shia believe mo appointed his bro-in-law, ali to be his successor. they been fighting each other about it ever since. the sunni's believe ali is one of the great caliph's of islam, along with abu bakr, but the shia think no one is equal to ali and are usurpers.
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Pretty close, but missing a few details.
Sunni's believe that Muhammad's succesor was to be appointed by tribal council, which was what happened. (His father in law, Abu Bakr)
The followers of Ali were pissed, because they felt that Muhammad had named Ali his succesor - this goes against Arab tradition.
Arab's traditionally fear kings, and so prefer to elect their rulers via council.
After Abu Bakr came 'Umar and 'Uthman, all selected by tribal council.
'Uthman was murdered, some suspect by Ali.
When Ali was selected by the tribal council, he did not get a chance to consolidate his rule, because of the controversy over 'Uthman's death.
So, there was a war, and people died, and they have been fighting ever since.
The majority of Shi'a are in Western Iraq/Iran.
This was because Ali had moved the caliphate to Iraq, and the Iraqis felt some loyalty to him.
The Iranians (Persians) sided with Ali because, well, they didn't like the Arabs, and saw it as an oppurtinity to break away from the caliphate.
On a side note, anyone who tells you that it was a mistake to invade Iraq because now the Iranians will have influence over the Western Iraqis because they are both Shi'a is an idiot.
Arabs and Persians do not get along - lot of rivalry there.
Think Red Sox/Yankees.
Also - do not say Shi'ites, it is impolite and incorrect.
The proper term is shi'a.
ETA: As other posters have said - it is damn confusing!