The region of NK, and much of the surrounding area are currently under Armenian sovereignty. At the time of the sovietization of the greater Caucasus region, NK had an Armenian population well over 90%. For various reasons, rather than NK being set under the jurisdiction of Soviet Armenia, rulers in Moscow placed it, as an autonomous region, under Soviet Azerbaijani rule. At various times during the seventy years of the Soviet Union, demands that NK be placed under Armenia's jurisdiction were made, but rejected. This demand actively re-emerged in the late 1980s as Moscow's control was under pressure and the Soviet Union began to disintegrate. NK Armenians exercised their right under the Soviet constitution for a referendum which overwhelmingly supported secession. The re-emergence became violent as NK demands for a union with Armenia, or self-rule, were met by a brutal crackdown by authorities in Baku. Pogroms against Armenians across the whole of Azerbaijan culminated with the violent expulsion of over a quarter million Armenians from the Azerbaijani capital of Baku and hundreds of thousands more across the breadth of Azerbaijan. In reaction, Armenia expelled its Azerbaijani minority.
The ensuing war between Azerbaijan and the Armenians of NK resulted in over 30,000 killed and the displacement of about a million people on both sides. In May of 1994 a cease fire was arranged. Since then the region of NK has exercised independence. Although not recognized intentionally as a state, it exercises democratic sovereignty over the region. Border skirmishes and sniper deaths are daily occurrences as aew limited-sized battles along the lines of contact. At the ten thousand foot level, in lieu of a negotiated agreement, Armenians want the status quo and Azerbaijan endeavors to make this status quo come at the highest cost to Armenians.
Negotiations over NK, ironically, have taken place between the Republic of Armenia and the Republic of Azerbaijan, not with NK. Azerbaijan rejects any acknowledgment of such entity as NK not under its jurisdiction. This is the first mistake Azerbaijan made in limiting its diplomatic options. Negotiations have been sponsored by several international bodies, including the Parliamentary Assembly of the Council of Europe (PACE) and the OSCE Minsk Group organized by the Conference on Security and Cooperation in Europe (CSCE) now known as Organization for Security and Co-operation in Europe, the OSCE.
The OSCE is mandated to encourage a negotiated settlement of this conflict. Armenians have offered to release land outside of NK, especially those to the east and south to Azerbaijan in exchange for Baku's recognition of NK's status. Azerbaijani negotiators have offered many packages that are associated with autonomy, self-rule, etc, but predicated on NK being placed under Azerbaijani jurisdiction. Thus, we have an apparent zero sum: Baku demands NK be integrated into Azerbaijan, NK want their republic recognized.
However, what appears zero-sum outwardly, upon closer inspection reveals something else. Over the past two decades, when Azerbaijan claims to offer an integrated NK with all the benefits of “broadest autonomy”  under Azerbaijani jurisdiction, such offers are operationally disingenuous. Not only was “broadest autonomy” noted during negotiations multiple times, but specific references were made to Aland Islands, Tatarstan, Northern Ireland, South Tyrol, Trieste, and Catalonia by political historians in Baku, such as Elhan Shahinogly . Taking Finland's Aland Island as an example, if such a status were a serious offer in negotiations, operationally it would mean:
Azerbaijan's constitution would have to change as it is currently a unitary state. If NK Armenians gain autonomy, surely other ethnic minorities who find themselves under Azerbaijani jurisdiction such as the Lezgin and Talish, will demand geo-ethnic autonomy. None of this is in the interest of the Azerbaijani state.
Armenian will become an official language within Azerbaijan and so will other non-Turkic languages. The chance of this being enacted is near zero as Armenians, their language, religion, and culture have been demonized within Azerbaijan.
NK will have a direct say in Baku's foreign policy direction and decisions. This is not in the interest of the Azerbaijani state.
In addition, if Azerbaijani demands for the return of all displaced peoples were enacted:
Armenians would return to Baku, displacing Azerbaijanis living in their former homes and the Azerbajianis who lived in NK would return to either destroyed, pillaged, or weather-ravaged homes. This is not in the interest of the Azerbaijani state or its people.
Armeno-phobia has reached such a level in Azerbaijan, with a generation being socialized to equate all evil with Armenians; inter-ethnic strife would run rampant across Azerbaijan, probably uncontrollable for years.
This last point is where time worked directly against policy-makers in Baku. Time, rather than to bankrupt Armenia and the Armenians of NK, unfortunately created conditions making it virtually impossible for Armenians and Azerbaijanis to live in close proximity to each other.
Basically, Azerbaijan can propose all or any such autonomy-centered items during negotiations but they are not in the interest of Azerbaijan. The impact of the points noted above could have been minimized if Azerbaijan had engaged the Armenians of NK in direct negotiation, avoided extreme official ethnic hatred campaigns, or simply had recognized NK as an independent entity early on.
Azerbaijan is left with the only remaining option (outside of complete disintegration of the Aliyev ruling elite and associated oligarchy) and that is the military option. The feasibility of this option is enhanced since Azerbaijan's military budget has grown rapidly and it alone is larger than Armenia's entire state budget. Azerbaijan claims its military budget is ten to twenty times that of Armenia's.
A recommendation would be for Azerbaijan to immediately begin to tone down its gross discriminatory rhetoric against Armenians and then to recognize the status of NK outside of its jurisdiction. Logic dictates either Baku recognize its status or engage in a war that will devastate the economies of both Armenia, Azerbaijan, and the greater region. The other option, keeping the status quo, is not sustainable. Baku may be assuming that time is on their side again and will bring a disintegration of larger regional power structures enhancing a decision for a military solution. However, as Sun Tzu noted, “He wins his battles by making no mistakes.”
 Autonomy Possible For Karabakh Armenians https://www.rferl.org/a/1086938.html and Azerbaijan Ready to Grant Wider Autonomy to Nagorno-Karabakh https://sputniknews....aijan-autonomy/  Azerbaijan suggests the status of autonomy for the neighboring states http://www.nkr.am/en...2011-01-28/332/