This Italy under Mussolini made some gains in the Mediterranean with German help after the POD in 1941, but their troops in Ethiopia had to capitulate end of 1941, and they lost initiative in the war to the Germans. The government made peace with the Allies in summer 1944 after they landed on Sicily. (For a moment, Mussolini could calm down his opponents; but when the first GIs set their foot on mainland Italy and combined American and British troops pushed the Axis behind the Suez canal, his time ran out, and he was imprisoned.) Germany managed to disarm the troops of its former ally, but when they tried to occupy Rome, the Italian partisans made them so much trouble that they had to retreat further back. (ITTL, Germany had less troops available for Italy; although there had been no battle comparable with Stalingrad, the attrition of two years in Russia had hurt the Wehrmacht enough, and the theater in Africa and the Middle East took its toll either. They didn't manage to liberate imprisoned Mussolini, too, so their satellite government in Northern Italy was even weaker.) When Germany capitulated, the northern third of Italy was still occupated.
After the war, Italy became a republic as IOTL and joined the EEC and NATO.