Uchiha Clan

The was once considered to be one of the most powerful clans in Konohagakure, now almost extinct after the events of the Uchiha Clan Massacre.

History
Before the founding of the ninja villages, the Uchiha were one of the many mercenary clans for hire. Because of their Sharingan the Uchiha clan came to be known as one of the two strongest clans, the second being the Senju clan. Madara Uchiha was particularly powerful, and upon attaining the Mangekyo Sharingan he took control of the clan. Under his leadership the Uchiha grew stronger, conquering whatever clans they came upon, such that whenever the Uchiha clan were hired for a job, the opposing side would hire the Senju.

Hashirama Senju, the leader of the Senju clan, grew tired of the endless fighting and approached the Uchiha clan with a peace treaty. Madara feared that an alliance would lead the Uchiha to ruin, but his clan disagreed and he was forced to accept. The two clans came together to form Konoha, with Hashirama being selected as Hokage. Madara believed this was proof that the Uchiha would be made subservient to the Senju, but his clan saw this only as his attempt to rekindle the flames of war. They turned their back on him and he defected. Following Madara's betrayal, the Second Hokage gave the Uchiha control of the Konoha Military Police as a sign of trust. According to Madara, this was really just of keeping the Uchiha in check and out of Konoha's governing affairs.

Decades later, after the Demon Fox Attack of Konoha, Konoha began to suspect that an Uchiha was behind the attack. The Uchiha were relocated to a corner of the village so that they could more easily be monitored. The Uchiha interpreted this as conformation of what Madara had warned years earlier and began to plan overthrowing the village. One Uchiha, Itachi, disagreed with the coup d'état and informed Konoha's leadership of what the Uchiha were up to. To prevent an uprising that would create another war, Itachi was ordered to wipe out the Uchiha.

Itachi spared only one Uchiha: his brother Sasuke. Sasuke would spend the next few years trying to avenge their family by killing Itachi, something Itachi had planned for from the very beginning. Once accomplishing this goal, Sasuke learns that Madara is also still alive. Madara tells Sasuke about the Uchiha's history and why Itachi wiped out the Uchiha, prompting Sasuke, with Madara's help, to resolve to destroy Konoha.

Abilities
The Uchiha were infamous for their especially strong and natural aptitude for anything combat-related, highly powerful chakra, and their proficiency in fire jutsu, having created several and using them more skillfully than any other. Their signature jutsu was the Fire Release: Great Fireball Technique. Clan members were not recognized as adults by the rest of the clan until they could successfully use this.

The Uchiha clan were also famous for their powerful Sharingan, a kekkei genkai which gives them the ability to see the "colors" of chakra, copy their opponent's skills, and a number of other abilities. Only a select few members of Uchiha clan manifested the Sharingan. Due to a Sharingan user's natural affinity for battle, many ninja considered it more tactically favorable to flee rather than face a Uchiha shinobi in one-on-one combat.

Madara discovered that the Sharingan could be taken to its next level by killing one's closest friend: the Mangekyo Sharingan. It gave the user great power, but slowly deteriorated their eyesight. Only by taking the eyes of a sibling can one's vision be restored. Itachi indicates that the intricacies of the Mangekyo Sharingan were only discovered after years of trial-and-error, indicating that many Uchiha throughout history gained the Mangekyo Sharingan.

Trivia

 * Uchiha is another way of pronouncing "uchiwa," a paper fan, which is the Uchiha clan's symbol. Uchiwa can be used to fan flames, making the flame hotter — referring to the fact that the Uchiha is a clan of fire-jutsu users.
 * The three Uchiha to survive the massacre have all eventually become affiliated with Akatsuki.
 * According to the 3rd Databook, The Nine-Tailed Fox is the only one who knows the truth about the Uchiha clan and about Naruto. However, it appears that the Demon Fox has no intentions of telling what it knows.