In recent years, our understanding of gamma-ray bursts (GRB) promptemission has been revolutionized, due to a combination of newinstruments, new analysis methods, and novel ideas. In this review, Idescribe the most recent observational results and currenttheoretical interpretation. Observationally, a major development isthe rise of time resolved spectral analysis. These led to (I)identification of a distinguished high energy component, with GeVphotons often seen at a delay and (II) firm evidence for theexistence of a photospheric (thermal) component in a large number ofbursts. These results triggered many theoretical efforts aimed atunderstanding the physical conditions in the inner jet regions. I highlight some areas of active theoreticalresearch. These include (I) understanding the role played by magneticfields in shaping the dynamics of GRB outflow and spectra; (II)understanding the microphysics of kinetic and magnetic energytransfer, namely, accelerating particle to high energies in both shockwaves and magnetic reconnection layers; (III) understanding howsubphotospheric energy dissipation broadens the “Planck” spectrum;and (IV) geometrical light aberration effects. I highlight some ofthese efforts and point towards gaps that still exist in ourknowledge as well as promising directions for the future.
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