  We present an ab initio quantum theory of the metal-insulator transition in
Ti$_2$O$_3$. The recently developed cluster LDA+DMFT scheme is applied to
describe the many-body features of this compound. The conventional single site
DMFT cannot reproduce a low temperature insulating phase for any reasonable
values of the Coulomb interaction. We show that the non-local Coulomb
interactions and the strong chemical bonding within Ti-Ti pair is the origin of
the small gap insulating ground state of Ti$_2$O$_3$.
