Due to limited water RESOURCES, in the very near future Iran will face a serious water crisis. So planning and management of RESOURCES in order to achieve the integrated management and sustainable development of water RESOURCES in the catchment basins is of utmost importance. For solving this problem, optimal operation of water resource systems and a duty to preserve, protect and predict the future demands of a system for the next generations cause a great emphasis on water ALLOCATION in recent years. Water ALLOCATION is determined by the amount of water that the RESOURCES (surface and groundwater) should allocate in order to meet the different needs of the catchment basins. But this ALLOCATION is not an easy work because there are too many stakeholders (such as farmers, citizens, industries, ...), that there needs have interactions and conflicts sometimes. In this respect, modeling and simulation of water RESOURCES systems that can incorporate all factors and interactions which act effectively in the ALLOCATION of water RESOURCES, is very important. System dynamic is one of the new management tools that can simulate and analyze a wide variety of policy and decision making in complex systems of water RESOURCES. In this research, modeling, design, operation and optimal ALLOCATION of Alavian dam in Uremia lake basin is studied by using system dynamics. For this purpose after collecting data and analyzing them, the conceptual model is made in VENSTM DSS. By using that model, we can predict the behavior of dam and shortage of agricultural, industrial, environmental and municipal demands due to various scenarios. For analyzing, we use monthly data during the period of 1339 - 1389. Several statiscal analyzes was performed on data to have a trustable information for modelling. Based on findings of this study, it was shown that beside simplicity and good accuracy, this model has a very good adaptability with various conditions of dam's water ALLOCATIONs. Great shortage in ecological and agricultural needs was shown after simulation and it is necessary to propose new plans to defeat these shortages. In order to study the behavior of the model from different angles, two possible scenarios were simulated in the catchment area of the dam to meet the needs of agriculture, environmental, industrial and municipal. After simulation, we can predict the behavior of dam in respect to growing demands. Results show that due to increasing population that causes increase in municipal, agricultural and industrial demands, Alavian dam can not reply to all this growing demands and we should think about some new RESOURCES or use some plans to decrease the demands.