Ah, we finally see some action again, after a few chapters of conversations and flashbacks.

After Yahiko’s death, Nagato just spaces out, forgetting where he is and what he’s doing there. That gives the ANBU the perfect opportunity to kill, sending hundreds of kunai knives flying at him. For the first time we can see Nagato using Shinra Tensei himself, it seems that even back then he already knew most of the techniques he knows now. The young shinobi immediately goes after Hanzo, who is forcd to abandon Konan, in order to protect himself. Nagato tries to take Konan to safety, but Hanzo uses a special Doton jutsu to attach exploding tags to his legs and burn them severely. I imagine this and the heavy black rods, embedded in his back, are the reason why Nagato’s a turtle/crab wheelchair.
At this point Hanzo realises that his opponent possesses the strongest known Kekkei Genkai in the world – the Rin’negan. The Konoha and Amagakure ninja attack, which forces Nagato to use his ultimate jutsu – he summons Gedou Mazou – Outside Path (Heretical) Demon Statue.

08

This is probably a path different from the six paths of the Rin’negan. The demon statue seems to be alive, meaning it’s of the same class as Itachi’s Susano’o. It is the statue that Pein uses to seal the bijuu, only it’s a lot more lively this time. i wonder if there are more statues of this type. Itachi’s statue could seal away anything, this one can steal souls, seal souls and feed off of souls. We finally know where the black rods, that Pein uses as chakra emitters, come from. The demon releases a long black rod that penetrates Nagato’s back and grows branches outside his body.
09As a result, his life energy starts to get sucked out, his facial features change and he practically loses his mind. It’s almost as if the demon took over his brain. Even though his best friend got killed, he wasn’t visibly this angry. At the very least the pain from having a stick shoved in his spine must have driven his insanity further.
After the merging process is complete, the demon releases a spirit snake from it’s mouth. Everything that the snake touches has its soul extracted and devoured, probably turned into energy for the demon’s own use. The same snake technique was used to extract and seal seven of the bijuu so far.
Nagato’s snake goes after Hanzo, who realizes that he is no match for his opponent’s Rin’negan and uses Shunshin no jutsu to escape. BTW, don’t confuse the Shunshin technique, which is a flash step, wtih the Fourth Hokage’s teleportation ability. As all of his enemies are defeated, Nagato allows the demon to return to its dimension, but the chakra rods still remain inside him.
The scene changes back to the present time and explains his ideals to Naruto. In order for one country to have peace, another, weaker country, must act as its scapegoat. According to Pein’s views of life, as long as there are humans, ther will be pain and suffering. Or in the words of someone famous: “A human – a problem, no human – no problem.” Peace is unachievable, because humans are just too different (one man’s tragedy is another man’s comedy) and cannot work out their problems peacefully. Therefore, only pain and suffering await all who concern themselves with humanity and society. Pein believes that Jiraiya’s dreams and hopes are neither logical, nor possible, and thus are nothing more than a fantasy.
After hearing Pein’s story, Naruto is faced with a serious dilemma. He understands his adversary’s feelings, but his own hatred for Pein is unbearable. The fact that he understands Nagato’s suffering, however, means that he is one step further along the path that Jiraiya was talking about. Having his deceased master in mind Naruto produces his answer – he chooses to believe in the ability of humans to achieve peace. His final decision is to spare Pein’s life. Hopefully that doesn’t mean he won’t kick his ass.

BTW, doesn’t this look just like a Sasuke?