The resulting treaty of 1903, signed by Philippe Bunau-Varilla and Secretary of States John Hays, which had been in effect until 1979, called for payment of $10 million by the United States to Panama and an annual payment thereafter of $250,000. In return, Panama granted to the United States rights "in perpetuity " to construct, operate, maintain, and provide defense for an interoceanic canal in an area ten miles wide (which was to become the Canal Zone) over which the United States would exercise rights, powers, and authority as "if it were the Sovereign of the territory."

In 1904, the United States negotiated the purchase of the French Company's rights and assets for $40 million. However, when the U.S. Government took over the effort of constructing a canal, it found most of the machinery useless and discarded it.

Facing seemingly unsurmountable obstacles

The United States' work of constructing the Canal involved three main problems: sanitation, organization, and engineering.

The Isthmian Canal Commission, a Federal agency created in 1904 reporting to the President of the United States through the Secretary of War, was charged with the construction of the Panama Canal.

When the United States started construction, health conditions in the area were no better than during the previous centuries. Through the efforts of U.S. Army Colonel William C. Gorgas (who was placed in charge of sanitation and health in the Canal Zone), a comprehensive program of drainage, spraying, trash cleanup, and development of water and sewage systems was initiated in the Canal Zone and the adjacent Panama City and the city of Colon. By the time canal construction started in earnest in 1907, yellow fever had been eliminated and malaria brought under control.