I think the republic will gradually transform itself into the Empire as we know it, by episode 4, if you remember in the beginning of a New Hope during the meeting on the death star where Vader does the force-choke, one of the officers says something to the effect of 'if word got out of Leia's capture , it could create sympathy for the rebellian in the 'senate', then Tarkin says 'the Emperor has taken steps to dissolve the senate and remove the last traces of the old republic once and for all' (excuse me if I'm misquoting, I'm relying heavily on my memory of the scene, when I should be working) .

by the end of AOTC Palpatine has already politically manipulated himself into the highest position of power in the Galaxy and been granted emergency powers , once Palpatine turns public opinion against the Jedi by portraying them as the bad guys, and uses his clone army to defeat the trade federation seperatists, he will be perceived as a hero who brought order back to the Galaxy, (how do you think George W got re-elected?) corruption in the senate will continue to grow, as will Palpatines power, and it will be years until the general public realise how corrupt and evil the government have become.

Meanwhile Bail Organa, Mon Mothma etc will continue their work as a voice of reason within the Senate, whilst secretly organising a resistance movement (rebel alliance) against Palpatine and his new order.