  We analyze $M$-theory compactified on $(K3\times S^1)/Z_2$ where the $Z_2$
changes the sign of the three form gauge field, acts on $S^1$ as a parity
transformation and on K3 as an involution with eight fixed points preserving
SU(2) holonomy. At a generic point in the moduli space the resulting theory has
as its low energy limit N=1 supergravity theory in six dimensions with eight
vector, nine tensor and twenty hypermultiplets. The gauge symmetry can be
enhanced (e.g. to $E_8$) at special points in the moduli space. At other
special points in the moduli space tensionless strings appear in the theory.
