This paper examines the task of understanding dialogues in terms of the mental states of the participating agents. We present a motivating example that clarifies the challenges this problem involves and then outline a theory of dialogue interpretation based on abductive inference of these unobserved beliefs and goals, incremental construction of explanations, and reliance on domain-independent knowledge. After this, we describe UMBRA, an implementation of the theory that embodies these assumptions. We report experiments with the system that demonstrate its ability (...) to accurately infer the conversants’ mental states even when some speech acts are unavailable. We conclude by reviewing related research on dialogue and discussing avenues for future study. (shrink)