Historians and researchers believe that it is possible that Kailua was home to Hawaiian families at least 1,500 years ago. The earliest settlers are thought to have lived fished and played on the slopes surrounding Kawainui Marsh. A Bishop Museum report on archaeological excavations of the marshland concludes that when the marsh slopes were first occupied about 500 A.D., agriculture was not possible. The report said that early Hawaiian occupants of Kailua apparently lived beside a lagoon or bay open to the sea hundreds of yards shoreside of today's shoreline. In the 16th century, Kailua attracted the ali'i giving birth to many rich Hawaiian legends, some of which may be found in written and oral reminiscences in Hawaii State Libraries. Many legends were born here including the menehune who were known for working at night in Kaiwainui Marsh and mo'o who took the shape of a large lizard that attracted fish. Kailua was densely populated before the arrival of Captain Cook and was the ancient capital of O'ahu's kings. The biggest event in Kailua and the entire Windward side was in 1795 when King Kamehameha I conquered O'ahu in his quest to unite the Hawaiian Islands. The King granted Kaiwainui Marsh and old Kailua, which included large freshwater fish ponds and saltwater ponds at Mokapu, to the warriors and chiefs that had helped him. The land was used in various forms for agriculture from sugarcane to rice to taro and eventually was used primarily for cattle raising. Kailua was a sleepy town of barely 3,000 in the 1940s. However, the events of World War II changed the appearance of Kailua. Kaneohe Ranch sold portions of land to the government for expansion of the Navy base and the Army's Fort Hase. Finally in 1942, Kaneohe Ranch closed down its cattle raising operations entirely, freeing thousands of acres for post-war development. Harold K.L. Castle, owner of Kaneohe Ranch, donated the land for many churches, schools, and for a new hospital. A new four-lane highway, tunneling through the Ko'olau Mountains, was completed in the late 1950s. In 1946, a small Liberty House (now Macy's) shop opened with three employees and upgraded to a full-line department store in 1953 with nearly 50 employees. The first bowling alley, a branch office of the telephone company, and the very first supermarket in Hawaii opened in Kailua in 1947. By the end of the 1950s, Hawaii had become a state and Kailua became the official postal designation. Castle Hospital opened in 1963. By 1960 the population was up to 24,400. The town has grown more than 100 percent since 1960 when its population was 24,402. It has a compact, easy-to-shop business district surrounded by mostly single-family homes. By 1992 50,000 residents encompassed a central urban core with surrounding residential areas.