In this paper, we first develop the system model for a wireless ad hoc network employing cooperative diversity. A simple fading relay channel is considered where the relay terminals apply the amplify-and-forward protocol. An equivalent multiple input multiple-output (MIMO) channel with multiple users is developed. Based on this model, basic rate matrix theory is applied to study the average rate regions under various transmission strategies. In particular whether relaying is beneficial is studied for cases with single hop and multi-hop routing where spatial reuse may be employed. The results indicate that cooperative diversity can provide substantial gains for cases with single hop routing. However, if optimum multi-hop routing is employed, cooperative diversity gains are small.