Gully erosion affects large areas in Ethiopia. It reduces agricultural productivity by destroying valuable land resources, increases sediment concentration and sediment yield, reduces water quality and fills up reservoirs. Gully erosion can transport large quantities of sediment. Gullies are the greatest sediment sources and should be targeted for erosion control. Gully erosion is geographically a widespread problem and is the worst stage of soil erosion. It becomes a challenge to stop it. This is related to the limited knowledge of the local hydrology of the watershed or real cause of gully formation. Different gully treatment methods have been tested in various areas but the success is not investigated by how much sediment reduced in the streams .Therefore, the objective of this study was to evaluate response of watershed after gully rehabilitation on sediment yield and sediment concentration. The total runoff generated at the outlet of the watershed was 106 mm,55.1 mm and 63.2 mm in 2014, 2015 and 2016 respectively. The total soil loss from the outlet was 12.5 ton ha-1 yr-1 , 4.5 ton ha-1 yr-1,4.1 ton ha-1 yr-1, in 2014,2015 and 2016 respectively. Gully rehabilitation measures consisted of reshaping the gully head at a 45° slope, Constructing Bamboo mat soil filled sack check dam and riprap from locally available materials, and planting elephant grass and Sesbania sesban. At the end of the year rainy season, 143 and 315 tons of soil was conserved in 2015 and 2016 respectively, by the constructed Bamboo mat soil filled sack check dam ,riprap and newly planted vegetation. Generally Sediment Yield and Sediment concentration at the outlet decreases towards the end of the rain season in 2015 and 2016 as compared to 2014 rain season. Sediment load and sediment concentration were respectively reduced 60% and 20% in 2015 , 75% and 35% in 2016 as compared to 2014. One of the reasons for this reduction could be the gully rehabilitation in 2015 and 2016.