The mechanism of diimine-Ni-catalyzed ethylene polymerization reaction has been studied theoretically using the B3LYP density functional method. The chain initiation reaction proceeds with the coordination of ethylene to the model active catalyst [L(2)NiCH(3)](+), L(2) = (HNCH)(2), followed by ethylene insertion into the metal-alkyl bond with a rate-determining 11.7 kcal/mol free energy barrier to form a gamma-agostic intermediate, which with a small barrier rearranges to a more stable beta-agostic intermediate and then forms an olefin alkyl complex upon coordination of the next ethylene. Linear polymer propagation takes place from this olefin alkyl complex, the resting state in the catalytic cycle, via the same insertion, rearrangement, and coordination pathway. An alternative pathway from the olefin alkyl complex passes over a 14-15 kcal/mol barrier for beta-hydride elimination and reinsertion for branched polymer propagation. These energetics suggest that the Ni(II)-catalyzed reaction is expected to produce more linear than methyl-branched polymers, and that higher temperature increases and higher ethylene pressure decreases the branching. Hydrogenolysis is an energetically favorable termination pathway, proceeding via coordination of a hydrogen molecule to the metal center, followed by H-H activation through a four-centered "metathesis-like" transition state and reductive elimination of alkane. A comparison with zirconocene-catalyzed ethylene polymerization shows that the Ni(II)catalyzed polymerization should be slightly slower and should give more branching.