There was a group of Jews who never left Babylonia after the Babylonian Exile in the 6th century BCE. This community more or less thrived. Living since 129 BCE under Parthian rule, a loosely knit semi-feudal state, it was able to develop its autonomous institutions with little interference from the royal government. The Parthians who always feared Roman intervention welcomed Jewish opposition to Rome, at least until the time of Hadrian.
The Parthians established a Jewish liaison between the government and the Jewish community, the exilarch, who thus became the head of Babylonian Jewry. Descended allegedly from the House of David, proud of their genealogical purity, the exilarchs wore the kamara, the sash of office of the Parthian court, and disputed precedence with high Parthian officials.
The community which they headed was both numerous (estimates of its number vary from 800,000 to 1,200,000) and well-based economically, comprising a fair number of farmers and many traders who grew rich as intermediaries in the profitable silk trade between China and the Roman Empire passing through Babylonia.
The Jews enjoyed not only freedom of worship, autonomous jurisdiction, but even the right to have their own markets and appoint market supervisors (agoranomoi).
In 226 CC the Sassanids conquered the Parthians. They were devout Zoroastrians, and there was some tension between the new political leadership and the Jewish community. However, after a period of troubles and disagreement at the beginning of the reign of Shapur I (241272), better relations were gradually established with the king.
Apart from their political and economic status, the main interest of Babylonian Jewry was its relations with the rabbinic centers in Judea and its religious/political development, leading up to the creation of the Babylonian Gemara. So long as there was a Temple, Jerusalem was the religious center for the Jewish people. With the Temple's destruction in 70 CE, the relations of the Babylonian Diaspora with Israel were characterized by ambivalence.
There were attempts to make Babylonian rabbinic courts independent of Israel's as early as 100 CE. These attempts failed. The people and therefore the Babylonian Jewish leadership acknowledged the authority of the Israel Jewish courts.
During the Hadrianic persecution several scholars of standing, R. Yochanan Ha-Sandlar, R. Eleazar b. Shamua and other pupils of R. Akiva settled temporarily in Babylonia and thus enhanced its prestige. However, the masterful personality of the patriarch R. Judah I still dominated from Israel. There were at least five Babylonians at his court, and he claimed and was accorded the right to ordain judges for Babylonia also. R. Judah did indeed admit the genealogical superiority of the exilarch, R. Huna, but only at a safe distance.
Conditions in Babylonia changed with the arrival in 219 CE at Nehardea of Abba Aricha (Rav), one of the pupils of Judah HaNasi. He arrived at Nehardea with a copy of the new best-seller, the Mishnah. Samuel, the son of Abba b. Abba, a rich silk merchant, was the leading sage at Nehardea. Samuel had established excellent relations with King Shapur I; it was due to him that the rule that civil law has the force of religious law became the guiding light for the Babylonian Jewish community.
Rav, noting serious differences between himself and Samuel, founded a new academy at Sura. Meanwhile, the school of Nehardea was dispersed after the Palmyrene raid of 259 CE and reassembled at Pumbedita, which became the rival of Sura among the Babylonian schools. More academies developed at Machoza and Mata Mechasya. The teaching process seems to be similar in all of the schools. Each started with a paragraph of Mishnah to which there appear to already have been attached added traditions and discussions from the period prior to the writing of the Mishnah. These were discussed and new legal statements were added. Each of these developed chunks of material connected to a statement from the Mishnah is called a sugya. Each succeeding generation learned the sugya and then added questions, challenges (usually from another known sugya), philosophical arguments, and stories connected to either the actual materials being discussed or to an assumed principle which the legal students believed the previous generations of sages held. Since most teachers had been the students of the previous leader of the academies, many of their statements were assumed to be direct quotes of their teachers. There are also many examples of noting the behavior of a teacher as proof of that teacher's underlying principles. Some teachers believed in encouraging philosophical argumentation; others emphasized close examination of the legal texts themselves.
There continued to be a group of sages who traveled between Judea and Babylonia, exchanging traditions.
With the crises facing the Jewish community in the third and fourth centuries CE, the Babylonians, who were always proud of their descent, now began to insist also on their superiority in learning and in Jewish authority. During the reign of Constantine, the Nasi, Hillel II, made this easy for them. He made the rules of the calendar public, thus cutting the one remaining authoritative tie which Israel had over Babylonia. The outcome was that the legal academies in Babylonia from the 4th-6th centuries became the Jewish authoritative centers of the Jewish world.