Early on, someone noticed that if the midbrain of a cat was transected (at point A, below), the cat fell into a coma - their EEG became permanently synchronized. This finding alone is not too surprising. However, if the transection was made down in the medulla (at point B), the cat was only paralyzed, not comatose. The most surprising phenomenon was that if the rostral stump of the transected midbrain was electrically stimulated (blue arrow), the cat "woke up" - according to its EEG.
From these experiments it was concluded that there was some pathway originating in the pons or midbrain that ran forward into the cerebrum and stimulated wakefulness. The pathway was thought to originate with a group of neurons in the brainstem, the reticular formation. Therefore it was named the ascending reticular activating system.
They were close. In fact, the ascending pathway originates from a group of neurons around the fourth ventricle in the rostral pons (near midbrain). Most of these neurons are acetylcholinergic, and project to the thalamus, controlling whether the gate is open or closed. The key is in the action of acetylcholine. Acetylcholine cannot, by itself, activate or shut down the neurons of the thalamus. Instead it sensitizes them. By slightly depolarizing the thalamic neurons (it does this by closing a hyperpolarizing potassium channel), the ascending system can make the thalamus more sensitive to sensory input. This situation would correspond to an awake, alert state.